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Break-even Analysis.

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Introduction

Break - even Analysis To work out my profit (or loss) for the first year of business, I have to compare two things - the expected level of sales taken from my cash flow forecast and the break - even point on the break - even analysis graphs. My cash flow forecast shows that for the first year of business, my expected level of sales will be approximately �58,800. This is the approximate income for the sale of 29,400 drinks in the first year. The expected level of sales is worked out using the number of drinks each person will buy, the number of customers per week, the price of these drinks (on the assumption that there is no special offers, and all drinks are full price), and the number of weeks in each month. The formula for each month looks like this: - Customers x N� of Drinks x Price x Weeks Total income To work out the number of drinks which I will sell in the first year, I used following formula:- Average n� Customers x N� of Drinks x N� of Weeks x N� of days Total N� of Drinks The break - even point of my graph, when the price is �2.00, shows that I should be making �72,000 and selling 36,000 drinks within my first of business. ...read more.

Middle

They must also consider that the actual figures can vary from what they have estimated. This is especially important to new and in-experienced businesses. Completing a cash flow forecast spread sheet, does not however, ensure that the business will be financially stable and does not ensure that the business will be able to survive. Companies tend to build their cash flows on spread sheets so that they can easily manipulate their cash flow. This then can be used to look at a companies best and worst case scenarios. This can help them to recognise the impacts of a single and multiple changes to the figures in the forecast. This in turn can be used to reduce risks in the business' finances. However, the company must be continually aware of the finance and market climate and understand that this is just as important as the number crunching. Sources of Finance My business will have a loan of �20,000 to start up, in my bank balance. However, this loan will have to be paid back over a period of time. I will have to pay this back with interest, and over a set number of years. This section of the assignment looks at the different interest rates on a loan of �20,000. ...read more.

Conclusion

It also shows how much I will have to pay back in total, (�20,000 + interest). This, again, is specifically aimed at businesses. The figures in the table for Barclay's are based on a loan without protection. The interest rates remain fixed on all the repayment periods at 6.9% APR. There are other banks that offer loans. These include the co-operative bank, Alliance & Leicester. There are also finance companies, such as Freedom Finance, Norton Finance and Ocean Finance who offer loans as well. However, I have not researched these as I did not want to many figures to compare. From the four banks that I have looked at and got figures for, I would probably choose to get my loan from Sainsbury's. This is because it is the smallest APR rate, which means that I will not pay back as much interest on my loan, as I would have done if I was to go else where. However, if I was to find out that this loan was not suitable for a business I would then approach Barclay's for my loan. This is because it has the next smallest APR rate attached to its loans. Another reason why I would go to these banks first is because, their rates are fixed no matter how long I decide to make my repayment periods. ...read more.

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