1. Entrepreneurship Week 11 Costs Estimates

2. Business Plan – Part 4 Cost List
Describe all you will need to start your business – a store, a website, advertising, employees, product, etc. Determine the cost of each item for one year. Be complete. For a store, what is the cost of rent, electricity, cleaning, display racks, etc. How much will employees cost? If you are selling a product, how much will the product cost you?

3. Business Plan – Part 4 Cashflow Chart
Next, create a cashflow chart. Include startup costs, monthly costs, and marginal costs. Fixed costs include things like rent and salaries. Marginal costs will be related to the number of products you sell.
The chart should run for twelve months.
Include estimated sales for each month and calculate your profit or loss for each month. Also add up your profit or loss for each month so you have a total for the year.

4. Business Plan – Part 4 Break-even Analysis
Next, complete a break-even analysis. Given the fixed costs you will have for a year (start up costs plus all your monthly expenses like rent and pay), how many products do you have to sell to cover all those costs (to “break even”)?

5. Financing your business
Business Plan – Part 4
Financing your business 
Then, given your estimated income or loss for the first year of your business, how much money will you need to start your business and support it for one year? Where will you get that money?

6. Cost List Labor - programmer 1000 O.R. /month Continual
Start up or Continual
Labor - programmer
1000 O.R. /month
Continual
Labor – clerical assistant
500 O.R. /month
Office rental
300 O.R. /month
Phone service
5 O.R./month
service
Web site creation
20 O.R.
Start up
Computer
150 O.R.
2 desks
80 O.R.
2 chairs
60 O.R.
Web site hosting
Advertising brochures
50 O.R./1000
Software manuals
2 0.R. each
Cost of good sold
Software disks
1 O.R. each
Mailing costs for software

7. 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”)
Cost of good Sold – costs that only occur if you sell a product - food for your restaurant, clothing for your store (“marginal costs’)

8. Cost Problems
Start up – high start up costs require that you have more money to start the business
Continual – high fixed costs mean you will lose money quickly if you do not have many sales
Cost of good sold – low marginal revenue means you make very little from each sale, so you will need to sell many items to cover your costs.

9. Cost Responses
Start up –Find ways to reduce your startup costs – buy used equipment or sell over a web site rather than through a store
Continual – reduce fixed costs by using less labor
Cost of good sold – increase marginal revenue by raising your prices. Do NOT complete on low cost, but by better service or some other competitive advantage. DO NOT give things away free!

10. Cost Responses Example – flower shop
Start up –Find a used refrigerator for your flowers. Decorate the store yourself.
Continual – reduce fixed costs by doing all the flower arrangements yourself. Do not hire a clerk.
Cost of good sold – Use the same price for flowers as other stores. Don’t compete on cost – compete on service. Open your store longer hours, or design special flower arrangements for weddings that are truly unique.

11. Cost Responses Dress shop example
Start up –List all start up expenses. Now find 2 start up costs you can reduce
Continual – What continuing costs will you have? List 2 ways to cut your fixed costs
Cost of good sold– List one way you can raise the price of your dresses and still be competitive.

12. Cost Responses For your business
Start up –List 2 start up costs you can reduce
Continual – List 2 ways to cut your fixed costs
Cost of good sold– List one way you can raise the price of your product and still be competitive.

13. Estimating Income Marginal Income = sales – cost of good sold
1 ice cream cone
Income = 500 (customer price) – 160 (my cost for the ice cream)
Marginal Income = 340 Baisas

14. “Real” Income Monthly income = unit income * units sold – fixed costs
My store earns
(0.340 OMR * number of cones sold) –
Fixed costs (store rental, labor, web site, phones, electricity, etc.)
If you sell 1000 ice cream cones and your fixed costs are 500 OMR, will your store turn a profit this month?
If not, how many do you need to sell?

15. “Real” Income Monthly income = unit income * units sold – fixed costs
My restaurant earns
500 baisas on each meal sold
How many meals do I have to sell if my fixed costs are 800 OMR per month?
How many meals is that per day?

16. Fix the problem - restaurant
Monthly income = unit income * units sold – fixed costs
My restaurant earns 500 baisas on each meal sold
My fixed costs are 800 OMR per month
Provide 5 ways to raise income from sales, or reduce fix costs

17. Fix the problem – flower shop
Monthly income = unit income * units sold – fixed costs
My store earns 200 baisas for each flower sold
My fixed costs (rent, labor, electricity) are 600 OMR per month
How many flowers do I need to sell each month?

18. Fix the problem – flower shop
Monthly income = unit income * units sold – fixed costs
My store earns 200 baisas for each flower sold
My fixed costs (rent, labor, electricity) are 600 OMR per month
I sell my flowers for 500 baisas each. So does every other flower shop. If I sold my flowers for 400 baisas, how many would I need to sell each month?
Is there a way I could sell my flowers for 600 baisas?

19. Cash Flow -1 Assumes sale of 100 items per month2 3 4 5 6 7 8 9 10 11 12
Labor costs
1500
Office costs
315
Start up costs
 950
C.O.G.S.
200
Total costs
Revenue
1000
Profit/(loss)
Yearly profit/(loss)

20. Cash Flow - 2 Assumes sale of 200 items per month COGS = 1
Cash Flow - 2 Assumes sale of 200 items per month COGS = 1.5 OMR, customer price = 4 OMR
Month 1 2 3 4 5 6 7 8 9 10 11 12
Labor costs
500
Office costs
315
Start up costs
 1250
C.O.G.S.
 300
300
Total costs
Revenue
Profit/(loss)
Yearly profit/(loss)

21. Cash Flow - 3 Assumes sale of 1000 items per month COGS = 3 OMR, customer price = 7 OMR2 3 4 5 6 7 8 9 10 11 12
Labor costs
400
Store costs
650
Start up costs
 2000
C.O.G.S.
Total costs
Revenue
Profit/(loss)
Yearly profit/(loss)

22. Cash Flow - 4 Assumes sale of 400 items per month COGS = 7 OMR, customer price = 15 OMR2 3 4 5 6 7 8 9 10 11 12
Labor costs
400
Store costs
250
Start up costs
 450
C.O.G.S.
Total costs
Revenue
Profit/(loss)
Yearly profit/(loss)