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Profitability and Liquidity

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Task C Task C1-Profitability and liquidity Profitability: Profitability is the "making of gain in business activity for the benefit of the owners of the business." It is vital to my business as it allow my business to keep running. This is because by making a profit: > Means my business is of interest to people and so by making a profit it is prevented from closing down. > Where I have borrowed money, for example, for the set up of my business, I will take a loan from the bank, by making a profit I am then able to pay off that money. > In the future, if I am looking to expand my business I am able to as I have enough, or even extra funds to use. This shows that 'passion4fashion' is doing well and its performance is improving. > I can be rewarded for the risks that I have taken in order to run the business. Profitability is a vital part in my business as I have to ensure the list above is carried out, once I have made a profit, e.g. pay bank loans back. As the owner of 'passion4fashion' I would like to ensure all the hard work I put into the business will be paid off, I believe that the profit is my reward for my entrepreneurial activities. Failure to gain profit leads to an unsuccessful business. By making a profit and by that profit gradually increasing let me know that my business is improving over time. However, as 'passion4fashion' is a new business I cannot expect a profit immediately. Even though I will not gain a profit immediately, I will still need some sort of finance in order for my business to survive in the short run therefore I will have to have a sufficient amount of liquid resources. This is because liquid resources can be turned into cash within 12months. ...read more.


On a monthly basis I have calculated that my business make sales worth �1900 for the first three months. I plan to sell 120 T-shirts a month, at the average price of �15.83. I have only calculated an average price as the price may vary depending on the type of T-shirt the customer requires, e.g. larger logos will have an additional charge. I have increase my estimated sales figure after three months as during the 1st three months I plan to heavily advertise my business in the local newspaper, and become a recognised brand. The advertising will come into effect after three months. And so by the time of April and May I will have a larger market share. I have estimated that my busiest months of the year will be June and July. I have again increased my estimated sales figure to �4600, I hope for this increase as the weather will be getting hotter and therefore people are more likely to buy and wear T-shirts. Also, during the summer, I have researched that people, mostly students, go on holiday. As they go in large groups they buy personalised T-shirts stating where they are going, and their name or the name of their group. For example; During those two months I plan to sell 290 T-shirts per month (rounded up to nearest 10) this will increase my revenue by �1250, with sales rising from �3,350 in May to �4,600 in June. However, during the months of August and September I have realistically decreased sales to be the same as April and May, this is because the weather will be getting colder and therefore people will not buying or wearing as many T-shirts. I have also estimated that the sales drop after September until December, this is because the weather is going to be extremely cold and it is highly unlikely that T-shirts will be worn. ...read more.


Also, if I target my business to break even in June and it does so in October than I can see that I need to improve my business strategies in order for my business to be successful. I will use the calculation shown above to figure out how long it will take in order for my business to make a net profit. By using the research I have conducted which tells me how many T-shirts I are demanded a week, for example 40 T-shirts in demand for every week on an annual basis, I will sell 2080 T-shirts a year. Break even comes into this as I can see how many T-shirts I have to sell in order to break even and how long it will take me to sell that many T-shirts. If I am able to break even within the first year I can then calculate my net profit after breaking even, with this information I can then start expanding on ideas for my business and strive to achieve new aims and objectives. By using my market research to calculate how long it will take in order for my business to break even, I can then adjust it accordingly. For example, if I end up selling more than I planned I will be sure break-even quicker. However, if I end up selling less than I intended than I will have to recalculate my break even time. My break even figure may even change, for example, if a new scenario occurs where perhaps a new competitor enters the market, I may have to lower prices. This means that I will have to sell more T-shirts in order to break even. To keep revenue the same if I decrease the price I will have to either promote my business more, or look around for a cheaper supplier! My break even figure can also help me when I have the money to pay out in order for my business to remain liquid. ?? ?? ?? ?? ...read more.

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