1. ANALYZING FINANCES Unit 5

2. FORECASTING SALES Part One

3. SALES FORECASTING four steps There are four steps in preparing a sales forecast: current 1.Analyzing current conditions past 2.Reviewing past sales predications 3.Making educated predications about the future timeperiod 4.Estimating your future sales for a specific time period sales forecast A sales forecast is a prediction of the amount of future sales your company expects to achieve over a certain period of time. sales forecast A sales forecast is a prediction of the amount of future sales your company expects to achieve over a certain period of time.

4. FORECASTING TECHNIQUES Full Capacity Full Capacity – selling as many products/services as you can ObservationalData Observational Data – observe your competitors MarketShare Market Share – what you are likely to sell ProportionalScaling Proportional Scaling – start small and grow to estimate Number ofNumber ofAverage Amount of CustomersPurchases per YearEach Purchase xx Special Considerations How are sales estimated (hours, yards, item, etc.) Seasonal Cycles

5. PROJECT TIME Create a Sales Forecast in Excel

6. THE COST OF BUSINESS Part Two

7. FIXED COSTS Stay the same no matter how many items are produced.I NSURANCES ALARIES A DVERTISING I NTEREST D EPRECIATION U TILITIES R ENT You purchased a lawn mower for $325. You expect the lawn mower to last for 10 years. At that time, you will sell the lawn mower for $25. What is your depreciation cost per year?

8. PROJECT TIME Estimate Your Fixed Expenses

9. VARIABLE COSTS Variable costs change based on how many items are produced 1.Cost of Goods Sold (COGS) Cost of merchandise Cost of materials Cost of labor 2.Other Expenses Commissions Shipping Handling ECONOMIES OF SCALE Try to take advantage of VOLUME DISCOUNTS to keep costs down. ECONOMIES OF SCALE Try to take advantage of VOLUME DISCOUNTS to keep costs down.

10. PROJECT TIME Estimate Your Variable Expenses

11. UNITS OF SALE A unit of sale is what the customers actually buys from you. vs. The contribution margin is the amount per unit that a product contributes toward the company’s profitability. The Student Store sells a candy bar for $1. The store pays $0.48 for the candy bar. What is the contribution margin?

12. CONTRIBUTION MARGIN FOR SERVICE BUSINESS

13. BREAKEVEN POINT The breakeven point is the level of sales required to pay all expenses. The Student Store sells a candy bar for $1. The store pays $0.48 for the candy bar. The Student Store has monthly fixed expenses of $160. What is the breakeven point for candy bars?

14. TIME TO PRACTICE Units of Sale

15. SOLVE EACH PROBLEM

16. FINANCIAL STATEMENTS Part Three

17. SCHEDULE OF STARTUP FUNDS REQUIRED Outline of the equipment, supplies & marketing expenses required to start a business. Olson's Piano Lessons Schedule of Startup Funds Required Prepared by the owner, Nancy Olson Startup funds available: $1,000.00 Equipment and Supplies:Price Ea.Qty. NeededTotal Music Lesson Books 9.99 15.00 $149.85 Calendar Book 15.99 1.00 15.99 Reward Stickers 2.99 3.00 8.97 Advertising: Newspaper Ad (2 weeks) 100.00 2.00 200.00 Flyer mailed to 100 neighbors 0.50 100.00 50.00 Total Startup Funds Required: $ 424.81 Startup Funds Left Over: $575.19

18. PROJECT TIME Create a Schedule of Startup Funds

19. INCOME STATEMENT Summary of income and expenses Can be weekly, monthly or yearly Calendar Year Fiscal Year Must do yearly; should do monthly. Summary of income and expenses Can be weekly, monthly or yearly Calendar Year Fiscal Year Must do yearly; should do monthly. Olson's Piano Lessons Projected First Year Income Statement Prepared by the owner, Nancy Olson REVENUE (SALES) Sales $ 12,500.00 Cost of Services Sold Materials (Lesson Books) 149.85 Supplies 24.96 Total Cost of Goods Sold 174.81 Gross Profit 12,325.19 OPERATING EXPENSES Insurance 500.00 Advertising 1,000.00 Total Operating Expenses 1,500.00 Income Before Taxes $ 10,825.19 Taxes (15%) $ 1,623.78 Net Income $ 9,201.41 merchandising manufacturing See the white textbook for examples for merchandising and manufacturing businesses.

20. PROJECT TIME Create a Projected Income Statement

21. CASH FLOW STATEMENT Summary of cash inflows and outflows WARNING!vary WARNING! Cash Flows can vary greatly from one month/season to the next! Olson’s Piano Lessons Projected Cash Flow Statement - Year 1 Quarter 1Quarter 2Quarter 3Quarter 4 Beginning Cash Balance $ 1,000.00 $ 1,825.00 $ 3,975.00 $ 5,275.00 Cash Inflows: Sales 1,500.00 3,000.00 2,000.00 6,000.00 Available Cash $ 2,500.00 $ 4,825.00 $ 5,975.00 $ 11,275.00 Cash Outflows: Cash Purchase of Materials $ 175.00 $ 350.00 $ 200.00 $ 525.00 Insurance Paid 250.00 Advertising Paid 250.00 Total Cash Outflows $ 675.00 $ 850.00 $ 700.00 $ 1,025.00 Net Cash Flow $ 1,825.00 $ 3,975.00 $ 5,275.00 $ 10,250.00

22. PROJECT TIME Create a Projected Cash Flow Stmt.

23. WAYS TO KEEP CASH FLOWING Collect cash as soon as possible Pay bills close to the due date Keep track of your cash Lease items when you can

24. ANALYZING FINANCES Unit 5