Apr 02, 2018 || Finance Monday
Having an educated idea about the basics of finance can benefit your business more than not having an idea at all. This will also distinguish your business because through this knowledge, you build your capacity in knowing when to add value, modulate price, manage resources and deliver efficiently…
Today, will be looking at some topics under Basic Finance Methods.
BASICS OF FINANCE
This teaches on basic finance steps in entrepreneurship and helps equip individuals with the knowledge and skills needed to start and establish a business.
BREAK EVEN POINT is that point where one is neither gaining nor losing. It is an ability to determine one’s expense and gain in a given month.
You must be able to determine the different types of costs to calculate the break even point.
Startup Costs are those costs incurred to kick start the business. These expenses are done before the business starts running, E.g. Land, Setting up an office, Registration of the business, Legal etc. Many people underestimate startup costs, and start their business in a careless, unplanned way.
Fixed Costs are costs that do not change irrespective of any business activity, whether there’s an increase or decrease in the amount of goods and services produced or sold these particular costs remain fixedly paid by the company like the name implies.
Variable Costs are tied with the production level and varies with the level of output; the quantity produced determines the amount, i.e. these particular type of cost increases or decreases depending on the business’ production volume; they rise as production increases and fall as production decreases.
IMPORTANCE OF BASICS OF FINANCE
- It teaches how to differentiate types of costs affect the profit ability of a business.
- Helps determine to be sold to cover monthly expenses.
- Teaches how to calculate the break even point.
- It equips business owners with the knowledge of how to differentiate the various types of costs.
- Shows how long it will take to recover startup cost based on profit margin.
This is the process of tracking the constant flow of goods and materials in and out of a business.
Raw materials, Work-in-progress, Finished goods and supplies.
- It represents cash in and out.
- It helps the entrepreneur to stock up enough goods to meet demands.
- It teaches the entrepreneur to purchase wisely.
- It reduces waste by not over stocking (perishable and obsolete items).
- It helps to keep up with deliveries.
- It saves money from tracking and minimizing lost or stolen raw materials & finished goods.
PROBLEMS WITH POOR INVENTORY MANAGEMENT
- Not enough products to sell
- Too much stock of raw materoials
- Not enough dtorage space for supplies and finished goods.
- Late on deliveries because of lack of raw materials.
- Not able to keep tarck of lost or stolen items.
“You cannot do without inventory management”
According to Mrs. Alero as regards PRICE SETTING in business, She says that there’s no exact way of setting a price but at the end of the day profit should be aimed for. Know what your competitors are doing. Find out how your customers react to your price. What are your price parameters? What factors do you consider when settings a price for your product or service? Who are your target market and what’s their value worth, sell according to that.
If your price is wrong your business can close down. Value propositioning teaches you how to include value in your business, you must tell your competitors why your product is better. Never engage in price war. You need to know how to sell your product effectively. Ask yourself, how can i add value to make mine different and more attractive.