1. Entrepreneurship Week 13 Break Even Analysis

2. Assignment Dates
April 25 – Business Plan -- part 4 May 2, 4, 9, 11 – Business Plan presentations

3. Next Week
April 18 & 20 – no Class April 21 & 24 – Bring Business plan Part 4 to my office for review. Any time from 10:00 to 12:00 and 1:00 to 4:00

4. Business Plan – Part 4 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. Break-even concept
If my store rent is 200 OMR and my labor cost is 100 ORM each month, what is my total cost for the month?
If I sell cell phones and make 5 OMR profit on each phone, how many phones do I have to sell each month to pay all my costs (break even)?

6. Break-even concept
Fixed cost – a cost I must pay even if no customer buys my product (store rent, employee wages, electricity)
Marginal cost – cost incurred if I sell a product (cost of good sold)

7. Break Even Which of these costs are “fixed”?
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

8. Calculate labor costs for the year –
Break Even Analysis
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
Calculate labor costs for the year –
Calculate office costs for the year –
Calculate start up costs for the year –
How much are my total fixed costs for the year?

9. Calculate labor costs for the year –
Break Even Analysis
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
Calculate labor costs for the year –
Calculate office costs for the year –
Calculate start up costs for the year –
How much are my total fixed costs for the year?
If I made 2 OMR profit on each product I sold, how many products would I need to sell to cover the costs?

10. 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 Goods Sold – costs that only occur if you sell a product - food for your restaurant, clothing for your store (“marginal costs’)

11. Estimating Income Marginal Income (profit) = sales – cost of good sold
1 flower
Income = .200 (customer price) – .050 (my cost for the flower)
Marginal Income (profit) = .150 OMR

12. Achieving profit
Monthly income = unit income * units sold – fixed costs
My Flower Shop earns
(.150 OMR profit * number of flowers sold) –
Fixed costs (store rental, labor, web site, phones, electricity, etc.)
If you sell 1000 flowers and your fixed costs are 500 OMR, will your store turn a profit this month?
If not, how many do you need to sell?

13. Monthly income = unit income * units sold – fixed costs
Break Even
Monthly income = unit income * units sold – fixed costs
My restaurant earns
.500 OMR on each meal sold
How many meals do I have to sell if my fixed costs are 800 OMR per month?

14. Break Even unit income * units sold = fixed costs
My clothing store earns
4 OMR on each dress sold
How many dresses do I have to sell if my fixed costs are 800 OMR per month?

15. Start up costs
A new business does not just have fixed costs (rent and salaries), it also has start up costs (equipment, decorations, initial advertising). Start up costs need to be paid – usually over several months or a year.

16. Break even – dress shop If I make a profit of 4 OMR on each dress I sell, how many dresses do I need to sell to cover the costs of my first 6 months in business?
Month 1 2 3 4 5 6
Labor costs
500
Store costs
315
Equipment purchase
400
Advertising
100
C.O.G.S.

17. Break even – cold store If I make an average profit of 0
Break even – cold store If I make an average profit of 0.1 OMR on each item I sell, how many items do I need to sell to cover the costs of my first 12 months in business?
Month 1 2 3 4 5 6 7 8 9 10 11 12
Labor costs
200
Store costs
300
Equipment purchase
900
Advertising
100
C.O.G.S.
Total costs

18. Break even analysis – ice cream shop
Month 1 2 3 4 5 6 7 8
Labor costs
200
Store costs
300
Equipment purchase
600
Decorating
100
If I buy ice cream for 0.1 OMR per scoop and sell it for .300 OMR per scoop, how many scoops do I need to sell to cover my costs for 8 months?

19. Break even analysis
Month 1 2 3 4 5 6 7 8
Labor costs
200
Store costs
300
Equipment purchase
Decorating
100
When I start my ice cream shop I am able to find a very good used refrigerator, so my equipment costs are only 300 OMR. Now how many ice cream scoops do I have to sell to break even if I buy ice cream for 0.1 OMR per scoop and sell it for .300 OMR per scoop ?

20. Break even analysis
Month 1 2 3 4 5 6 7 8
Store costs
300
Equipment purchase
Decorating
100
I decide I will not hire a clerk, but will operate the shop myself. Now how many ice cream scoops do I have to sell to breakeven if I buy ice cream for 0.1 OMR per scoop and sell it for .300 OMR per scoop ?

21. Break even analysis
Month 1 2 3 4 5 6 7 8
Store costs
300
Equipment purchase
Decorating
100
I pay no attention to my business professor and decide I will compete by having the lowest cust0mer prices. I pay 0.1 OMR per scoop and sell ice cream for 0.15 OMR per scoop. How many scoops do I need to sell to cover my costs?

22. Break even – watch store If I make an average profit of 12 OMR on each watch I sell, how many watches do I need to sell to cover the costs of my first 12 months in business?
Month 1 2 3 4 5 6 7 8 9 10 11 12
Labor costs
200
Store costs
600
Equipment purchase
900
Advertising
1000
C.O.G.S.

23. Break even – Tour Operator If I make an average profit of 100 OMR on each tour I give, how many tours do I need to give to cover the costs of my first 12 months in business?
Month 1 2 3 4 5 6 7 8 9 10 11 12
Labor costs
600
Travel costs
Equipment purchase
900
Advertising
2000
C.O.G.S.

24. Initial Finance
How much money do you need to cover startup costs – and – the period where you are cash flow negative?

25. Initial financing – dress shop Projected sales are 100 dresses per month What if sales are lower?
2 – store opens 3 4 5 6
Labor costs
500
Store costs
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

26. Ice cream shop - financing example IF you meet sales projects, you go cash flow positive after 3 months, so you need 1000 OMR
Month 1
2 – store opens
3 – 4 5 6 7 8 9
Labor costs
150
Store costs
200
Equipment purchase
600
Decorating
100
C.O.G.S.
Total costs
900
450
500
550
Revenue
 400
400
800
Profit/(loss)
(900)
(50)
250
Yearly profit/(loss)
(950)
(1000)
(800)
(550)
(300)

27. Ice cream shop - financing example what if you sell just 100 cups per month? Buy 100 cups (250 bz) – sell 100 cups (500 bz)
Month 1
2 – store opens
3 – 4 5 6 7 8 9
Labor costs
150
Store costs
200
Equipment purchase
600
Decorating
100
C.O.G.S. 25
Total costs
900
375
Revenue
 50 50
Profit/(loss)
(900)
(325)
Yearly profit/(loss)
(1225)
(1550)
(1875)
(2200)
(2525)
(2850)
(3175)
(3500)

28. Business Plan Part 4 Finance section
Calculate how much money you would need if your business had no revenue for 12 months.
That is your need for financing.
State the amount and explain it.
Explain where you will get the money.

29. Business Plan Part 4 Finance section
Sources of money:
Your savings
Your family
A bank loan
A grant
Investors

30. Financing – Tour Operator If I receive an average 100 OMR on each tour I give, and I give 5 tours per month for the first year, how much will I need to borrow to stay in business for a year?
Month 1 2 3 4 5 6 7 8 9 10 11 12
Labor costs
600
Travel costs
Equipment purchase
900
Advertising
2000
Total costs
Revenue
Profit/(loss)
Yearly profit/(loss)

31. Financing – Khanjar shop If I pay 30 OMR for each khanjar and sell them for 50 OMR, how much will I need to borrow to stay in business for a year if I sell 40 khanjars per month? What if I sell none?
Month 1 2 3 4 5 6 7 8 9 10 11 12
Labor costs
150
shop costs
200
Equipment purchase
100
COGS
Total costs
Revenue
Profit/(loss)
Yearly profit/(loss)