Write a critique of Lily’s approach. 2. Provide logical justifications for your stance. Adapted from: Barringer and Ireland (2010), Chapter 6
STUDY GUIDE BMED5103 Enterprise Development 36 Topic 5: Can You Make a Profit and Are You in Good Financial Health? Learning Outcomes By the end of this topic, you should be able to: 1. Describe how to forecast the likely sales volume; 2. Discuss how to estimate costs associated with starting up; 3. Explain how to set the price for your product or service so that you can make a profit; 4. Explain the various sources of funding available to a new enterprise; 5. Realise how you are performing compared to the past and your competitors; and 6. Explain the key levers that you need to pull to deliver growth. Topic Overview The topic starts with the issue of forecasting sales which includes credible projections, market share, customers, rule of thumb and desired income. To make a genuine profit, estimating costs like fixed cost and variable cost as well as preparing financial budgets are considered core of estimation. This topic also discusses operating budget and cash-flow budget with cash sales, cash payments received on account and loan proceeds. It then focuses on break-even analysis and ratio analysis. Finally, this topic elaborates on profitable pricing which includes two things and a worked example. The cash flow versus profit and sources of start-up finance are also mentioned at the end. In addition, the topic discusses the financial health of an enterprise. Finally, the topic ends with illumination of measuring profitability, liquidity, working capital and solvency.
STUDY GUIDE BMED5103 Enterprise Development 37 Focus Areas and Assigned Readings Focus Areas Assigned Readings Barrow, C., Burke, G., Molian, D., & Brown, R. (2011). Enterprise development: The challenges of starting, growing and selling businesses (1st ed.). United Kingdom: Lightning Source. 5.1 Forecasting Sales Chapter 5, pp. 80-81. Extra Reading: Barringer and Ireland, (2010), Chapter 3, p. 105. 5.2 Estimating Costs Chapter 5, pp. 81-83. Extra Reading: Schaper et al. (2011), Chapter 14, p. 342. 5.3 Preparing Financial Budgets (a) The operating budget (b) The cash-flow budget Chapter 5, p. 83. Extra Reading: Kuratko (2009), Chapter 11, pp. 291-296. 5.4 Pro Forma Statements (a) Income statement (b) Balance sheet Chapter 5, p. 83 Extra Readings: Barringer and Ireland (2010), Chapter 8, p. 291; Kuratko (2009), Chapter 11, p. 298; and Schaper et al. (2011), Chapter 14, p. 343. 5.5 Capital Budgeting (a) Payback method (b) Net present value (c) Internal rate of return Chapter 5, p. 86. Extra Readings: Kuratko (2009), Chapter 11, pp. 300-303; and Schaper et al. (2011), Chapter 14, p. 352.
STUDY GUIDE BMED5103 Enterprise Development 38 5.6 Break-Even Analysis (a) Break-even point computation (i) Contribution margin approach (ii) Graphic approach (iii) Handling questionable costs Chapter 5, p. 84. Extra Reading: Kuratko (2009), Chapter 11, pp. 304-305; Schaper et al. (2011), Chapter 14, p. 343; and Scarborough (2012), Chapter 7, p. 240.