Understanding Feasibility & Accessing Information

Mile Markers 3 & 4 (4.02)

Making Money $$$$

In order to determine if a product or service is needed, a feasibility analysis should be completed.

After deciding that it is viable, a prototype ( a working model or product) should be developed

Sales Projections

Also called a forecast An estimate of sales for a specific

period Can be a yearly, quarterly, monthly,

daily projection

Pricing Fixed Costs

Expenses that don’t change with number of products produced

Examples: Rent Insurance

Variable Costs Expenses that change with each unit produced Examples:

Utilities Wages Materials

Pricing

Liabilities Money owed to others Examples:

Bills Wages Taxes

Pricing Odd/Even Pricing

Odd ($19.99) suggests bargains Even ($20.00) suggests higher quality Part of psychological pricing

Markup The amount added to the cost of a product to

cover expenses & ensure a profit Cost + Markup = Price $5 + $2 = $7

Break Even Point When the money from product sales equals

the costs of making and distributing the product

Can be used to figure out how many dollars in sales it will take for a product to break even

Formula: Fixed expenses/ unit sales price – variable

expenses (cost to make product) = Break even point (units needed to sell)

Example: $7000/$10 - $6.50 = 2000 units

Cash-flow Statement Describes the flow of cash into & out

of a business Needs to be created at the end of

each month Helps with estimate sales and

operating expenses Formula:

Cash receipts (inflow) – Disbursements (outflow) = Net cash flow

Balance Sheet

Tells what a business is worth Formula:

Assets = Liabilities + Owner’s equity Assets- things of value that belong to a

company Owner’s equity- the amount left over after

the liabilities are subtracted from assets

Income Statement

Also called a profit-and-loss statement Compares revenues & expenses over

a specific period Prepared monthly Formula:

Revenues – Expenses = Net Income (Loss)