Understanding Feasibility & Accessing Information Mile Markers 3 & 4 (4.02)

Making Money $$$$  In order to determine if a product or service is needed, a feasibility analysis should be completed.  After deciding that it is viable, a prototype ( a working model or product) should be developed

Sales Projections  Also called a forecast  An estimate of sales for a specific period  Can be a yearly, quarterly, monthly, daily projection

Pricing  Fixed Costs Expenses that don’t change with number of products produced Examples:  Rent  Insurance  Variable Costs Expenses that change with each unit produced Examples:  Utilities  Wages  Materials

Pricing  Liabilities Money owed to others Examples:  Bills  Wages  Taxes

Pricing  Odd/Even Pricing Odd ($19.99) suggests bargains Even ($20.00) suggests higher quality Part of psychological pricing  Markup The amount added to the cost of a product to cover expenses & ensure a profit Cost + Markup = Price $5 + $2 = $7

Break Even Point  When the money from product sales equals the costs of making and distributing the product  Can be used to figure out how many dollars in sales it will take for a product to break even  Formula: Fixed expenses/ unit sales price – variable expenses (cost to make product) = Break even point (units needed to sell) Example:  $7000/$10 - $6.50 = 2000 units

Cash-flow Statement  Describes the flow of cash into & out of a business  Needs to be created at the end of each month  Helps with estimate sales and operating expenses  Formula: Cash receipts (inflow) – Disbursements (outflow) = Net cash flow

Balance Sheet  Tells what a business is worth  Formula: Assets = Liabilities + Owner’s equity  Assets- things of value that belong to a company  Owner’s equity- the amount left over after the liabilities are subtracted from assets

Income Statement  Also called a profit-and-loss statement  Compares revenues & expenses over a specific period  Prepared monthly  Formula: Revenues – Expenses = Net Income (Loss)