1. Cash Flow and Breakeven analysis
Week 12
Tutorial class ( 17/4/2017 )
MANGT 100
Abdullah Al Shukaili

2. Outline
Capital sources
Cash flow statement
Breakeven analysis

3. Capital sources Equity Debt Personnel saving Family or friends loans
Shareholders
Debt
Government loans and support
Bank and financial institutions

4. Government Institutions
Institutions supporting entrepreneurship in Oman
9/4/2014

5. 9/4/2014

6. 9/4/2014

10. Government financial support in Oman
AL RAFAD FUND
Program "Mawrid” loans
The "Tasees” program
The “Riada “ Program
The Tazeez Program
Loans range from 10,000 OMR to 100,000 OMR

11. OMAN DEVELOPMENT BANK (ODB)
There are Loans up to 50,000 R.O managed by ODB branches for SMEs
For more details visit:

12. THE RESEARCH COUNCIL FUNDING PROGRAM
This program is a trial program for two years funded by the Scientific Research Council in collaboration with the Ministry of Trade and Industry in order to build research capacity and innovation in the academic, and industrial field of to address industrial problems and challenges of small and medium enterprises on the basis of a competitive mechanism in the request for support.

13. SHARAKAH
Sharakah is a closed joint stock company, which was created to encourage and support the development of entrepreneurs and SMEs in the sultanate. It was established by Royal Decree (76/98) in 1998.
Equity participation in projects that are in high growth sectors. This financial solution gives an Investment amount between RO 10,000 to 200,000.

16. Institutions supporting entrepreneurship in Oman
Private Institutions
Institutions supporting entrepreneurship in Oman
9/4/2014

17. 9/4/2014

18. Estimate cost of start-ups
If you are planning to start a business, it is critical to determine your budgetary needs
Since every business is different, and has its own specific cash needs at different stages of development, there is no universal method for estimating your startup costs
Two types of costs:-
one-time costs such as the fee for incorporating your business or the price of a sign for your building.
Some will be ongoing costs, such as the cost of utilities, inventory, insurance, etc

19. Cost categories
Start up – An initial purchase for your business – usually equipment, or marketing materials
Continual – payments you are usually committed to making every month (“fixed costs”)
Fixed expenses include rent, utilities, administrative costs and insurance costs
Cost of goods sold – costs that only occur if you sell a product - food for your restaurant, clothing for your store (“variable cost’)
Variable expenses include inventory, shipping and packaging costs, sales commissions, and other costs associated with the direct sale of a product or service

20. Different FC & VC
Fixed costs (FC) are expenses that do not vary with sales volume, such as rent and administrative salaries.
These expenses must be paid regardless of sales, and are often referred to as overhead costs.
Variable costs (VC) fluctuate directly with sales volume, such as purchasing inventory, shipping, and manufacturing a product.

21. For your business plan
The most effective way to calculate your startup costs is to use a worksheet that lists both one-time and ongoing costs.
Visit this website

22. Cash Flow ( 2017) – dress shop
Month 1
2 – store opens 3 4 5 6
Labor costs
500
Store rent
315
Equipment purchase
400
Inventory purchase
1000
C.O.G.S.
 1000
1500
Total costs
1715
1815
2315
Revenue
 2000
2000
3000
Profit/(loss)
(1715)
185
685
Yearly profit/(loss)
(1530)
(1345)
(1160)
(475)
210

23. Flower shop cash flow goes positive after 8 months1 2
3 – store opens 4 5 6 7 8
Labor costs
200
Store costs
300
Equipment purchase
600
Decorating
100
C.O.G.S.
400
Total costs
1000
500
700
800
900
Revenue
1200
1600
Profit/(loss)
(1000)
(500)
Yearly profit/(loss)
(1500)
(1400)
(1300)
(1200)
(800)
(400)

24. Breakeven analysis (BEV)
 Is used to determine when your business will be able to cover all its expenses and begin to make a profit.
It is important to identify your startup costs, which will help you determine your sales revenue needed to pay ongoing business expenses.
The concept of break-even analysis deals with the contribution margin of a product

25. Breakeven analysis (BEV)
Breakeven point =
fixed costs/ (unit selling price – variable costs)
To solve this equation, you need to get the following:-
Total fixed costs:
How many units you expect to produce within a year?
Variable costs per unit ( total VC / Total units)
Sales price per unit

26. Preparing the cash flow and BEV
See the Excel sheet for an example of estimating CF & BEV