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Financial analysis for a new business - Delight Lollies

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Introduction

Task One In task one, we have been asked to identify 4 different costs that James and Lucy have to pay, these costs are; start up costs, running costs, fixed and variable costs. Fixed Costs- Fixed costs do not change with production. No matter how much profit that you make you will still have to pay for things such as: rent, business rates, and interest on loan payments, insurance, salaries. Fixed costs always stay the same, even if you make no profit at all. Variable Costs- Variable costs change with the number of goods and how much a business tends to make. The costs increase as the more profit you bring back to the business. Examples of Variable costs are: raw materials, refreshments for customers, and wages Starts up costs- Start up costs are costs in which you only ever pay once, and that is usually at the start of the business. ...read more.

Middle

A business can reduce its fixed costs by many ways. If a business moves to cheaper premises then they won't have to be paying a higher rent and the money coming in can be turned into profit and can be spent on other useful equipments that can help the business proceed. Variable costs can be reduced by any businesses. This can be done by getting a new supplier who offers cheaper raw materials. However if they find a cheaper supplier then they quality of the product may be reduced, this is something most business must think about. Lucy and James can reduce their costs in many ways. One way in which Lucy and James can reduce their costs is by moving to a cheaper premise. Their rent is at �40 a week, if they move out to a cheaper premise then the rent will decrease and more money can be put into profit. ...read more.

Conclusion

Cheaper prices will also increase their revenue as the consumers will prefer to buy something for cheaper than what other businesses are offering it for. Another way they can increase their revenue is by putting up posters around their local area and then more people will recognise their business and more people will turn up for some ice lollies. Costs and revenue are very important in making profit. If you reduce your costs then you will be making more profit. For example if you move to cheaper premises then you will be paying less money for rent, and let's just say you're getting the same amount of customers and you are charging them the same amount of price you will be making a greater profit. To make a greater profit you can reduce more costs and increase your product price to a reasonable amount that the customers will not mind paying, and then more money will be coming into your business and can be spent on other things. ...read more.

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A good structure and many good points are made here. There are some inaccuracies and it does all make it sound easy. More application to the case study is required. This is very general.

Marked by teacher David Salter 21/03/2012

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