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Business plan (simple start-up)
Transcript of Business plan (simple start-up)
(rent & rates) Materials Royalties Licences Insurance setup costs
(incurred once to get business started) fixed costs
(cost that don't vary with output or sales) variable costs
(increase as we produce more) There is no correct answer here... BUT to make sure we make a profit we need a price that... at least covers our
VARIABLE COSTS will eventually cover
our FIXED COSTS will turn a profit to ensure
the business is sustainable Variable costs £400 PROFIT MARGIN £250 Sales price £650 + = Check against
competitors Will customers
accept? Check the BREAKEVEN POINT The number of sales which takes the business from profit to loss. 1) Calculate what's left of the sales price after the variable costs have been paid - this is known as the CONTRIBUTION from each sale. £650 - = £250 £400 2) Divide your fixed costs by the contribution. This calculates HOW MANY times you need to sell something to pay off your fixed costs. Total setup & annual fixed costs = £1,750 + £1,050 £250 No. of gigs until profitable = 11.2, or 12 gigs! How can we possibly know how much we'll sell...! We guess... using assumptions but there's things that can help make it more accurate! Trials Surveys Historic sales of competitors Profit
& Loss Cash
flow Tax Sources of finance P&L rules 1) Record sales and expenses when the events happen
- e.g. if you have performed a gig then you record the revenue
- e.g. if you have taken transport, you record the expense
n.b. it DOESNT matter if you've rec'd/ paid cash. 2) Spread the costs of machines/ buildings/ equipment over their period of use
This is called DEPRECIATION.
-e.g. bought new amp for £1,500, expect it to last 5 years. Record depreciation of £300 each year. Cash flow rules VERY SIMPLE:
- Record cash receipts when you expect to receive them!
- Record cash payment when you expect to pay them! Sole trader Partnership Company Good BAD Simple
Little admin Unlimited liability Shared business risk
Additional skills Unlimited liability
complex Limited liability Admin: more paperwork! Equity Debt (Where do you get the start-up money from?) You give someone a permanent stake in the business In return, they get a % share of future profits = through dividends Investors perspective - high risk! Only get return if business does well (could win big/ lose big). Business owners perspective - Good for cash flow! Only pay dividends (the "cost" of borrowing) if business is profitable. Bad because you're no longer the sole owner of business. Someone loans the business money that the business must pay back over time In return, the lender is paid interest on the amount oustanding Investors perspective - lower risk than equity! The loan is repayable. In worst case scenario where business doesn't pay back money, the borrower can "call in" the debt or apply to the courts to liquidate the business/ reclaim the money. Business owners perspective - Not as good for cash flow! Have to pay interest out of profits, otherwise debt can be "called" in. Good because the borrower is only entitled to be repaid/ interest owed. Not a permanent stake in future profits made! Individuals Partnerships Companies - Income tax
- Capital gains tax
- VAT Same as individuals
Tax based on % of
partnership profit - Corporation tax
- NICs (employer)