HA1 Task 4 - Financial Planning

Task 4 Financial Planning

Variable Costs

A variable cost is where you can increase or decrease the cost on a certain object, like if you sold printer Ink black and coloured, you would only need to buy a certain amount of each colour, buying too much coloured and not enough black ink when you need black and not coloured. Otherwise you would spend too much and you would never sell enough and therefore not making profit.

A rule you are able to use for variable costs is very simple; Black ink is £10 in a pack and coloured £10 too. And you buy £100 worth of coloured and only £50 worth of black (10 coloured and 5 black packs). You are able to work out how much profit, you sell each pack at £20 pound therefore you gain £10 profit or 50% of total cost, (100% profit).

Sales - Variable Costs = Gross Profit

Gross Profit ÷ Sales = Gross Profit Percentage

Fixed Costs

Fixed costs are costs you, yourself are unable to change such as; rent, labour and utilities. They are fixed and cannot be broken, sales or not these will not change. Therefore the greater your sales the less the fixed costs will have an effect on your net and gross profits.

Gross Profit - Fixed Costs = Net Profit

Break-Even Point

The break-even point is where you no longer lose money, but neither makes money. This is the point where you are able to make money after hitting this point, before reaching this point you are/will lose money.

This point is very important, it lets you know where you need to reach (minimum) to be able to gain money, and with a small amount of modification this lets you know when you are able to make a certain amount of net profit.

Monitoring

Monitoring is where you look at the financial plan and see where you can compare it to actual figures, look for differences and help overcome them. Adjust expenditure or sales efforts as you go along, to bring the next group of numbers in line with the budget.

This is to make sure that you are on task, on time and not over budget. If you go over the original budget then you will have to add that to the variable costs and therefore making the break-even point harder to reach. If you don’t monitor than you have a very high chance of breaking the budget and losing a lot more money than planned. That is if you planned.

Sources; jeffsailor.com/jcpa/resource/budget.html

book-keeping.org.uk/blog/show,www-mark-gwilliam.com/