Hit the Ground Running by NESsT

Hit the Ground Running

section 2: business planning

Hit the Ground Running

It is important to plan for funding sources otherwise the enterprise will be difficult to launch (or launched without the proper resources). If not all startup investment can be raised, the social enterprise can prioritize its expenses or postpone investments not absolutely necessary before launching. 2. Break-even calculations The break-even point is the sales level – expressed in units – at which revenues equal expenses. At this level, the enterprise does not make any profits, nor does it lose money. The formula to calculate the breakeven point is the following (for more information on conducting a breakeven analysis, see Get Ready, Get Set, Chapter 5):

Fixed cost for the desired period Price per unit – Variable cost per unit

Following from the formula, the following information is needed to determine the break-even point: - Define a unit of the product or service: This enables the organization to have a consistent basis for comparison throughout the analysis and should reflect the way it thinks about the product or services (i.e. one subscription, one book, one training day, etc.). - Set the price: This is usually one of the most difficult steps but an enterprise can consider three pricing strategies separately or in combination: • Base the enterprise price on what customers are willing to pay for the product; • Determine the enterprise price based on what competitors are charging; • Base the enterprise price on cost calculations and profitability expectations. - Identify and analyze costs: With detailed research, the organization should be able to estimate costs fairly accurately. • Calculate fixed costs. Fixed costs are costs that the business incurs on a regular basis and that do not depend on the level of sales. For example, rent, utilities, equipment, and salaries. Fixed costs are calculated over a fixed period of time (usually a month or year). • Calculate variable costs per unit. Variable costs are costs that vary with the number of units sold. If the number of units sold goes up, variable costs also go up. If the number of units sold goes down, so do variable costs. In other words, these costs are directly linked to the product or service provided. Examples of variable costs include the cost of materials, direct labor costs of employees involved in product or service production, delivery costs, etc.