Money, Money, Money, Money, Money, Money, MoneyMoney

Apparel Development 2Apparel Development 2

Objective 4.01Objective 4.01

Financial ReportsFinancial Reports

Income Statement $$$$Income Statement $$$$

An income An income statement, otherwise statement, otherwise known as a profit and known as a profit and loss statement, is a loss statement, is a summary of a summary of a company’s profit or company’s profit or loss during any one loss during any one given period of time, given period of time, such as a such as a ****month, month, three months, or one three months, or one ****year. year.

Income StatementIncome Statement

The income The income statement records statement records all revenues for a all revenues for a business during business during this given period, this given period, as well as the as well as the operating expenses operating expenses for the business. for the business.

RevenueRevenue = = money coming inmoney coming in

ExpensesExpenses = = money going outmoney going out

ProPro-forma Income Statement-forma Income Statement similar to a historical similar to a historical

income statement, income statement, except it except it projectsprojects the the

future rather than tracks future rather than tracks the past. **the past. **

important tool for important tool for planning future business planning future business operations. operations.

If the projections predict If the projections predict a downturn in a downturn in profitability, you can profitability, you can make changes such as make changes such as increasing prices or increasing prices or decreasing costs before decreasing costs before these projections these projections become reality.become reality.

Importance of BudgetingImportance of Budgeting

To help meet To help meet financial goals financial goals and plans **and plans **

Business and Business and personalpersonal

Balance SheetBalance Sheet Summarizes a company's Summarizes a company's

assets, liabilities assets, liabilities and shareholders' equity at and shareholders' equity at a specific point in time.a specific point in time.

Shows how much of the Shows how much of the assets** belong to the assets** belong to the ownerowner

Tells an entrepreneur what Tells an entrepreneur what the company owns the company owns and owes, **and how and owes, **and how much the business is much the business is worth.worth.

**created daily at the end **created daily at the end of each day.of each day.

ExpensesExpenses

Fixed Expense (cost)Fixed Expense (cost) A cost that does **not A cost that does **not

change depending on change depending on production or sales production or sales levels, such as rent, levels, such as rent, property tax, property tax, insurance, mortgage, insurance, mortgage, and utilities.and utilities.

ExpensesExpenses VariableVariable Expenses Expenses (costs)(costs)

Cost of labor and Cost of labor and materials that materials that change according to change according to the change in the the change in the volume of production volume of production units. units.

The more purses you The more purses you make, the more make, the more costs of supplies and costs of supplies and hours of laborhours of labor

ExpensesExpenses Total Cost = Total Cost = Fixed costs + Fixed costs +

variable costs. variable costs.

Helps to ** Helps to ** determine price determine price required to required to make a profitmake a profit

Cash Flow StatementCash Flow Statement One of the most One of the most

important important **monthly **monthly statementsstatements

Lets you know if Lets you know if you have enough you have enough money to pay the money to pay the bills **bills **

Includes revenue, Includes revenue, expenses** and expenses** and profit (or loss)profit (or loss)

Sales ForecastingSales Forecasting May be done after May be done after

conducting a conducting a market analysis**market analysis**

Know who are Know who are your target your target customers **customers **

There are many There are many pricing variables ** pricing variables ** for new for new products/servicesproducts/services

Break-Even AnalysisBreak-Even Analysis

Used in pricing to Used in pricing to show a business show a business how many items how many items must be sold to must be sold to break even.break even.

Break-even analysisBreak-even analysis

Fixed costs divided Fixed costs divided byby

Selling price – Selling price – variable costsvariable costs

See work sheetSee work sheet

Markup your productMarkup your product In order to make In order to make

a profit, most ** a profit, most ** businesses use a businesses use a markup markup calculationcalculation

Formula:Formula: Cost (of product) Cost (of product)

+ markup = price + markup = price (to the customer)(to the customer)

Markup – Work it outMarkup – Work it out

What is the selling price of an item that What is the selling price of an item that costs $30.00 and has a markup of 50%?costs $30.00 and has a markup of 50%?

Cost + markup = priceCost + markup = price $30 + (30 x .50) = _____$30 + (30 x .50) = _____

$30 + $15 = $45$30 + $15 = $45

MarkupMarkup If you markup an If you markup an

item 100% above item 100% above cost, the selling cost, the selling price is double **price is double **

If you markup If you markup 200% above cost 200% above cost the selling price is:the selling price is:

tripletriple

Markup – and “bargain Markup – and “bargain price”price”

Give the impression of bargain pricing by Give the impression of bargain pricing by pricing something $0.99pricing something $0.99

$1.99, $5.99, $29.99$1.99, $5.99, $29.99

If an item costs $50 and you have a If an item costs $50 and you have a 100% markup, with a “bargain price of 100% markup, with a “bargain price of one cent less, what is your price?one cent less, what is your price?

Work it out:Work it out:

$50.00 cost$50.00 cost 100% mark up100% mark up Less 1 centLess 1 cent

$50 + $50 - $.01 = $50 + $50 - $.01 =

$99.99$99.99

MarkdownMarkdown Need to reduce Need to reduce

inventory . . . inventory . . . Have a “SALE”Have a “SALE”

If you take a If you take a markdown – how markdown – how does it affect your does it affect your break even point?break even point?

Must sell more Must sell more items**items**

Trade AssociationsTrade Associations

Specific to the ** Specific to the ** industry you are inindustry you are in

Information about Information about suppliers, marketssuppliers, markets

Technical and Technical and general assistancegeneral assistance

Research and Research and technologytechnology

Sewing AssociationsSewing Associations Home Sewing Home Sewing

Association Association www.sewing.org

American Sewing American Sewing Guild Guild www.asg.org

www.Apparelsearchwww.Apparelsearch.com.com

                                                                                                                                                                                                                                                                                        

TaxesTaxes

If a community If a community wants to attract wants to attract new businessnew business

They may offer They may offer tax break tax break incentivesincentives