As part of your plan you will need to provide a set of financial projections which translate what you've said about your business into numbers.
You will need to look carefully at:
how much capital you need if you are seeking external funding
the security you can offer lenders
how you plan to repay any borrowings
sources of revenue and income
You may also want to include your personal finances as part of the plan at this stage.
1 Financial planning
Your forecasts should run for the next three (or even five) years and their level of sophistication should reflect the sophistication of your business. However, the first 12 months' ...view middle of the document...
The point where sales or revenues equal expenses.
The point where total costs equal total revenues.
For business management, Break-even Point is the lower limit of profit when prices are set and margins are determined.
The Break-even method can be applied to a product, an investment, or the entire company’s operations. In options, Break-even Point is the market price that a stock must reach for option buyers to avoid a loss.
Break-even analysis is also a useful tool to study the relationship between fixed costs, variable costs and returns. Break-even price analysis calculates the price necessary at a given level of production to cover the costs.
Fixed costs include general overhead expenses, depreciations, interest costs, taxes and other similar categories of expenses that are not directly related to the levels of production.
Variable costs change in direct relation to volume of output. They may include cost of goods sold or production expenses such as labor, electricity, fuel, irrigation and other expenses directly related to the production of a commodity or investment in a capital asset.
Calculation of Break-even Point can be done using the following formula:
BEP = TFC / (SUP – VCUP)
BEP = Break-even point (units of production)
TFC = Total Fixed Cost
VCUP = Variable Costs per Unit of Production
SUP = Selling price per Unit of Production
Break-even calculation can also be graphically presented at monthly basis.
The Break-even Point should not be mistaken with the Payback Period, the time it takes to recover an investment.
Payback Period is perhaps the simplest method of looking at one or more investment projects and ideas.
It focuses on recovering the cost of investments.
It represents the ammount of time it takes for capital budgeting project to recover its initial cost.
PP = Cost of Project / Investment
Annual Cash Inflows
The Payback Period concept holds that all other things being equal, the better investment is the one with the shorter payback period.
Business income: sales
Business income falls into two categories for profit and loss reporting:
- sales or "turnover"
- other income
Business sales or turnover
Your business' total sales of products and/or services in a trading year is referred to as turnover. This is the starting point for your profit and loss account.
How you record sales will vary according to your business type and size. You may use a simple list or "ledger" in a book, a tailored spreadsheet, or a computer software program. Whichever system you use, you need to ensure that it is accurate and updated regularly
Business income: other
As well as reporting sales income, you need to report income to the business from other sources, for example:
- interest on...