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 Variable Costs Expenses that don’t change with number of products produced Examples: Rent Insurance Variable Costs Expenses that change with each unit produced Utilities Wages Materials

Pricing Liabilities Money owed to others Examples: Bills Wages Taxes

Pricing Odd/Even Pricing Markup 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)