Guide to finance

Great Idea! ...but do the figures stack up?

Conroy Williams

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Money, the necessary evil. ten:ten

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Determining an expenditure budget ●

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List all expenditure necessary to create the business.

Categorise these items into fixed and variable costs plus any capital expenditure. Group items where appropriate.

Estimate and assign costs for each item.

EXERCISE ONE

Pricing

How do we decide on the price we should charge?

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Pricing How do we decide on the price we should charge? ● How much money the customer is willing to pay ● How much money the competitors charge ● How much money the product costs to make ● How many units you think you can sell

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Pricing ●

Calculate a unit cost based on variable costs alone

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Estimate how many units you can sell over an agreed time

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How would you attribute fixed costs?

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When do you make a profit?

EXERCISE TWO

Break Even Break even point

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Fixed costs (selling price - variable cost per unit)

This involves a two part calculation: Selling price per unit minus variable cost per unit equals contribution (towards fixed costs).

AND Fixed Costs divided by contribution equals break even point.

Break Even Break even point

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Fixed costs (selling price - variable cost per unit)

EXAMPLE If fixed costs = £2000, variable costs = £8 per unit, Selling price per unit =£10.

Then break even would be: Price per unit – variable cost per unit = contribution (towards fixed costs). £10- £8= £2 (Contribution towards fixed costs) Fixed costs divided by contribution = Break even point. £2000 divided by 2 = 1000 1000 products will need to be sold in order to break even and cover all costs.

Break Even ●

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Using your proposed figures, calculate how many units you would need to sell to break even What alterations can you make to adjust your break even point?

What about your capital expenditure?

EXERCISE THREE

Break Even Chart

TR = Total Revenue

TC = Total Costs

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TVC = Total Variable Costs

Reflection What did you get out of this session?

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