project management system in enterpreneutship
- 2. National University of Technology Entrepreneurship Course By Muhammad Zohaib Khan Sr. Lecturer
- 3. Chapter 04 Establishment of an Enterprise
- 4. Lecture Outline ■ Product Costing ■ Break Even Analysis ■ Source of Finance
- 5. Product Costing ■ Product costing is the process of tracking and studying all the various expenses that are accrued in the production and sale of product. ■ It is roughly comprised of raw material expenses, process costs and other cost elements such as transportation, tool cost, staff cost, spot welding etc.
- 6. Product Costing ■ Direct Cost ■ Help you produce your goods or services ■ The physical materials needed to power your product. ■ The servers needed to power your ecommerce site. ■ The salaries and commission you pay employees to produce and sell your product. ■ Transportation methods that get your product to the
- 7. Product Costing ■ Indirect Cost ■ Help you support your business in other ways ■ The rent prices and fees that come with facilitating an office. ■ Expenses needed to keep your team happy and motivated (e.g. office perks or team lunches). ■ Supplies needed to help your office run smoothly. ■ Technology and IT that doesn’t directly help produce products
- 8. Break Even Analysis ■ Calculates how much sales are needed to cover costs ■ It helps determine the margin of safety based on revenue and expenses ■ It shows how many sales are required to pay for business costs ■ The analysis examines different price levels and demand variations. ■ It identifies the sales level needed to cover total fixed costs ■ A demand-side analysis helps sellers understand their selling potential ■ It is useful not just for startups but also for daily business planning
- 9. Break Even Analysis ■ Prices ■ If product costs are too low to break even in time, consider raising prices ■ Before increasing prices, compare with similar products ■ Ensure pricing remains competitive to avoid losing customers
- 10. Break Even Analysis ■ Material ■ If material and labor costs are too high, find ways to reduce them while maintaining quality ■ Research cost-saving options without compromising product standards ■ When launching a new product, consider both variable and fixed costs
- 11. Break Even Analysis ■ Market ■ Knowing the exact sales needed helps in setting long-term goals ■ If planning to expand, calculate additional sales required to cover higher costs ■ Helps in making informed decisions about business growth and expenses
- 12. Break Even Analysis ■ Goals ■ Knowing your break-even point helps motivate you and your team ■ It allows you to plan when your business will become profitable ■ The break-even point is when revenue equals costs ■ Once identified, you can review expenses like rent, labor, materials, and pricing
- 13. Break Even Analysis ■ Goals ■ Key Question to Ask ■ Are my prices too low or costs too high to break even soon? ■ When will I get break even? ■ Is my business financially sustainable?
- 14. Break Even Analysis ■ Calculating Break-Even Point ■ Break-even in units = Fixed Costs ÷ (Revenue per unit – Variable Cost per unit) ■ Break-even in currency (Rupees) = Fixed Costs ÷ Contribution Margin ■ Contribution Margin = Price of Product – Variable Costs ■ Fixed costs remain the same regardless of sales ■ Variable costs include labor and materials ■ Understanding these helps set realistic sales and pricing goals
- 15. Break Even Analysis ■ Contribution Margin ■ Contribution Margin = Selling Price – Variable Costs ■ Example: If a product sells for Rupees 100 and variable costs (materials & labor) are Rupees 40, the contribution margin is Rupees 60 ■ This Rupees 60 helps cover fixed costs ■ Any remaining amount after covering fixed costs becomes net profit
- 16. Break Even Analysis ■ Contribution Margin Ratio ■ Contribution margin is usually expressed as a percentage ■ Formula: Contribution Margin % = (Contribution Margin ÷ Selling Price) × 100 ■ To break even, subtract fixed costs from the total contribution margin ■ Helps decide whether to cut costs or raise prices to improve profitability
- 17. Break Even Analysis ■ Profit Earned following Break Even ■ The break-even point is when total sales equal fixed and variable costs ■ At this point, the company's net profit or loss is Rupees 0 ■ Any sales beyond this point generate net profit
- 18. Break Even Analysis ■ How to use Break Even ■ Break-even analysis helps determine your break-even point ■ After calculating, assess if your plan is realistic ■ You may need to raise prices, cut costs, or both ■ Consider whether your products will succeed in the market ■ Break-even analysis shows how many units to sell, but selling them isn’t guaranteed
- 19. Break Even Analysis ■ Fixed Cost ■ The costs associated with your business’s product that must be paid regardless of how much you sell. ■ Rent for office space or storefront ■ Weekly payroll ■ Equipment depreciation
- 20. Break Even Analysis ■ Variable Cost ■ The costs directly related to the sales volume of your business. ■ Delivery/shipping charges ■ Sales communication ■ Advertising and publicity
- 21. Source of Finance ■ Source of Finance for business include: Equity, Debt, Retained Earnings, Term Loans, Working Capital Loans, Venture Funding ■ These sources are used based on different situations like Time period, ownership and control, source of generation
- 22. Source of Finance ■ Equity Finance and Loan Finance ■ Equity financing involves selling a share of ownership in the company ■ Debt financing involves borrowing money that must be repaid with interest ■ The choice between the two depends on factors like control, risk, and repayment terms
- 23. Source of Finance ■ Initial Capital ■ It is used for hires, obtaining office space permits, licenses, inventory, research and market testing, product manufacturing, marketing, or any other expense ■ Working Capital ■ Working capital meaning the firms holding of current or short-term assets such as such, receivable, inventory and marketable securities ■ The items are also referred to as circulating capital ■ Corporate executives devote a considerable amount of attention to the management of working capital
- 24. TEST ■ Short Answer Questions ■ Name the qualities of successful businessman ■ What is risk tolerance ■ What are the principles of business negotiation ■ Long Question ■ What are the steps for decision making, explain each step in few words