Economical resources

Initial investment

Price calculation

Break even point

Key concepts

One time costs are the expenses made at the beginning of the company and you won't have to invest on them again or for a long period of time

Fixed costs are not subject to change depending on the number of units sold

Variable costs are subject to change depending of the number of units sold

Mark up is the amount added to the cost of an item to cover expenses and ensure a profit

Initial investment

Amount of money that you need to start your business.

You have to consider:

- Initial expenses = one time costs

- Monthly running expenses for the next (3) months

Initial Investment

One time costs

C

A

P

I

T

A

L

Equipment and machinery $ Installations $ Remodeling $ Initial inventory $ Services deposits $

Initial Promotion $ Licenses and permits $ Unexpected expenses $ Professional fees $ Initial advertising campaign $

Total

Initial Investment

Fixed costs monthly L

A

N

D

A

N

D

L

A

B

O

R

Salaries and wages $

Rent $

Promotion and advertising $

Delivering expenses $

Insurances $

Taxes $

Repairs and maintenance $

Training $

Services (Electricity, water, telephone) $

Interests over debts $

Total

Investment funds

Direct funds:

Angel Investors and partners

Debt funds

Banks and loans by suppliers

Initial Investment

Calculation

One time costs

+

3(Fixed costs)

=

Initial Investment

Production levels

Calculation 1. Define your unit of production:

One bagel, one liter of hydrogen, one cupcake.

2. Calculate the number of products you can produce according to your resources (human, material, etc.) and to the market demand and the supply.

3. Consider it daily and then define how many days a week are you going to work. Then turn these into a monthly plan.

4. Finally divide your total fixed costs between the total amount of products in a month.

Price

The price is the amount of money a seller is willing to accept in exchange for a product, at a given time and under given circumstances.

Enterprises have as an objective make its activity profitable and obtain an economic benefit.

Characteristics of Price

Setting a price for a good, service or an idea is not easy. You must consider

costs and expenses

supply and demand

consumer perceptions

Competition

government regulations

technological trends

Objectives for pricing

Based on Benefit: classic model, obtain maximum profitability

Based on sales: Maximum price, Penetration price (lowest)

Based on competitors: Positioning

Based on the costs: Calculation of middlemen costs .

Based on equilibrium: Supply and Demand

Variable costs

L

A

N

D

Raw materials $ Processed materials $ Parts $ Supplies $ Packaging $

Total

Price Calculation

(Fixed costs/number of products per month*)

+ Variable costs (per unit)

+ % mark up

= Price

* Due to your resources planned

Breakeven point

This point is reached when the total product´s sales are equal to the production and distribution costs.

In this point, all the expenses are covered and you are ready to have incomes.

Calculation

To calculate the number of units you are required to sell for your product to reach the breakeven point, the next formula is used:

F.C =Units for the Breakeven point

U.P. – V.C

F.E. = Fixed costs (month)

U.P. = Unit price

V.E. = Variable costs