1. Entrepreneurship Week 11 Break Even Analysis

2. Assignment Dates
December 9 – Business Plan -- part 3 December 14 & 16 – Group Presentations December 21, 23, 28, 30 – Business Plan presentations

3. 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”)
By sale – costs that only occur if you sell a product -
food for your restaurant, clothing for your store (“marginal costs’)

4. Monthly income = unit income * units sold – fixed costs
“Real” Income
Monthly income = unit income * units sold – fixed costs
My restaurant earns
1.500 OMR on each meal sold
How many meals do I have to sell if my fixed costs are 800 OMR per month?

5. 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.

6. Cash Flow – dress shop Month 1 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

7. Breakeven analysis Month 1 2 –store opens 3 4 5 6 Labor costs 500
Store costs
315
Equipment purchase
400
Inventory purchase
1000
Start up costs plus fixed costs for one year divided by profit per dress (this assumes you have a rental agreement for one year and a labor agreement for one year)
Start up costs = 1400 OMR
Continuing costs = 315 * * ( = 9280)

8. Flower shop cash flow goes positive after 8 months1 2
3 – store opens 4 5 6 7 8
Labor costs
200
Store costs
300
Equipment purchase
600
Decorating
100
C.O.G.S.
400
Total costs
1000
500
700
800
900
Revenue
1200
1600
Profit/(loss)
(1000)
(500)
Yearly profit/(loss)
(1500)
(1400)
(1300)
(1200)
(800)
(400)

9. Break even analysis
Month 1 2
3 – store opens 4 5 6 7 8
Labor costs
200
Store costs
300
Equipment purchase
600
Decorating
100
Start up costs (700 OMR) + fixed costs (2200 labor office costs) / marginal income of .6 OMR per flower (purchase for 200 baisas and sell for 800 baisas)

10. Break even analysis
Month 1 2
3 – store opens 4 5 6 7 8
Labor costs
200
Store costs
300
Equipment purchase
Decorating 50
When I start my flower shop I am able to find a very good used refrigerator, so my equipment costs are only 300 OMR. I also cut my decorating costs to 50 OMR. Now how many flowers do I have to sell to break even?

11. Break even analysis
Month 1 2
3 – store opens 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 flowers do I have to sell to breakeven?

12. Ice cream shop cash flow example
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)

13. Ice cream shop – Break even analysis
Month 1
2 – store opens
3 – 4 5 6 7 8 9
Labor costs
150
Store costs
200
Equipment purchase
600
Decorating
100
If I buy my ice cream for .250 OMR per cup, and sell for 1 OMR per cup, How many cups do I have to sell to break even? (Assume labor costs and store costs for one year)

14. Ice cream shop – Break even analysis
Month 1
2 – store opens
3 – 4 5 6 7 8 9
Labor costs
150
Store costs
200
Equipment purchase
600
Decorating
100
Example 2 - If I sell a special camel milk ice cream, it costs me .5 OMR per cup but I can sell it for 1.5 OMR per cup. How many cups do I have to sell to break even? (Assume labor costs and store costs for one year).

15. Ice cream shop – Break even analysis
Month 1
2 – store opens
3 – 4 5 6 7 8 9
Labor costs
150
Store costs
200
Radio advertising 50
Equipment purchase
600
Decorating
100
Example 3 – I decide I will get more sales if I advertise my camel milk ice cream on the radio. It costs me .5 OMR per cup but I can sell it for 1.5 OMR per cup. How many cups do I have to sell to break even? (Assume labor costs, advertising costs, and store costs for one year).

16. Ice cream shop – Break even analysis
Month 1
2 – store open 3 4 5 6 7 8 9 10 11 12
Labor costs
150
300
Store costs
200
Radio advertising 50
Equipment purchase
600
Decorating
100
Example 4 – Camel milk ice cream is so popular I hire a second worker in month 4. Now how many cups do I have to sell to break even? (Assume labor costs, advertising costs, and store costs for one year).