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    Ihe361 Lecture 5 Ppt

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    Ihe361 Lecture 5 Ppt

    Uploaded by

    Letsah Bright
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    Copyright:

    © All Rights Reserved
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    Download as pptx, pdf, or txt
    2 views40 pages

    Ihe361 Lecture 5 Ppt

    Uploaded by

    Letsah Bright

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 40

    IHE361: ENTREPRENEURSHIP

    EDUCATION AND COSTING


    OWNING AND
    OPERATING A SMALL
    BUSINESS
    OUTLINE

    • Financial management

    • Costing and pricing your product

    • Advertising and sales promotion


    Financial management in
    business
    • Financial Management involves
    planning, organizing, directing and
    controlling the financial activities of
    an enterprise or business.
    Financial management in
    business (contd.)
    • It is a deliberate and organised process
    of apportioning funds to specific
    financial activities in the business to
    maximise profit and reduce losses.
    What are some of the
    financial activities of
    a small business?
    Importance of Financial
    Management
    Ensures regular and adequate supply of funds (cashflow)

    Ensures adequate returns to the entrepreneur, partners


    and or shareholders.
    Ensures effective utilization of funds.

    Ensures safety on investments.

    Helps in planning a sound capital (balance debt and


    equity).
    Causes of Poor Financial
    Management
     Poor stock management

     Poor credit control

     Inadequate accounting and management


    information
     Cash-flow crises

     Under-capitalisation
    Causes of Poor Financial
    Management (cont.)
     Poor control of costs, sales volume and profit
    margin
     Excessive drawings of money from the business

     Unplanned financial structure

     Poor record keeping.


    Differentiate
    between:
    I. Cost and Price
    II. Costing and
    Pricing
    COST
    • Cost is all expenses incurred by the business to
    produce the goods or services for sale.
    • Takes the form of raw material, selling or
    distribution expenses, staff cost, and any other
    expense.
    • The cash outflow to produce the output.
    PRICE
    • The amount that is charged for the
    customers to pay in obtaining goods or
    services
    • It includes the intended margins and cost
    of production or delivery.
    • Price becomes the business’s revenue and
    COST VERSUS PRICE
    Cost is ascertained from the The customer’s perspective
    producer’s perspective. ascertains price.
    Price is charged from the
    Cost is the number of expenses
    customer for the goods and the
    incurred by the producer of the
    services which are sold to
    product to produce the goods.
    them.
    Cost results in the outflow of
    Price results in an inflow of cash
    cash
    Cost does not include margins of Price includes the margins of
    the product. the product.
    A margin is applied to the cost. Mark up is applied on Price.
    The business intends to The business intends to
    Categories of cost

    Direct/
    -Material INDIRECT -Material
    /fixed/
    variable -Labour overhead -Labour
    - -
    Expenses Expenses
    Can be Cannot
    traced to be traced
    the to the
    finished finished
    Factors influencing cost
    • Number of vendors present in the market
    for that product or service
    •Bargaining power of the enterprise
    •Nature of raw material required
    •Supply and demand factors that are
    associated with the product
    What is the
    importance of
    costing to the
    entrepreneur?
    What is pricing?
    Factors influencing price
    •Nature of Competition in the market
    •Number of buyers and sellers in the market
    •Target market audiences
    •Buying power of the customer
    •Bargaining power of the customer
    What factors
    influence profit
    margin?
    Types of pricing
    Cost-plus Pricing: calculates the cost of
    producing the good and adds on
    a percentage (profit) to that cost to give
    the selling price.

    •Limit Pricing: a price set by a


    monopolist to discourage economic entry
    into a market. The limit price is often lower
    than the average cost of production.
    Types of pricing (contd.)
    •Penetration Pricing: Setting the price lower
    than what it is offered by other competitors in
    order to attract customers and gain market share.
    The price can be raised later once this
    market share is gained.

    •Discrimination Pricing: Price discrimination is


    setting a different price for the same product in
    different segments to the market. (i.e. different
    classes of buyers, such as ages, or for different
    opening times).
    Types of pricing (contd.)
    • Psychological/odd-even Pricing
    • In this pricing designed to have a positive
    psychological impact on the customers. (Gh
    ¢ 4.99, rather than Gh¢ 5.00.)

    • Bait Pricing: very low prices are set for the


    bait item to attract the customers but they
    try to sell more expensive models or brands
    once the customer enters the shop.
    Types of pricing (cont.)
    • Leader Pricing: This involves setting a very low
    price for a particular item with the intention of
    getting more customers into the shop not to buy
    large quantities of the leader item but to get
    more of the customers to buy other products.

    • Target Pricing: selling price of a product/service


    is calculated to produce a particular rate of return
    on investment for a specific volume of production.
    Why is pricing
    important in
    running a small
    business?
    What constitute
    wrong pricing in
    small business?
    Break-even point and analysis

    • The break-even point is the point in business


    at which the total cost and total sales are
    equal.

    • Sales below the break-even point indicates


    company is operating at a loss.

    • Sales above the break-even means the


    business is operating at a profit
    Break-even analysis

    • Break-even analysis helps to determine the


    number of units of products that must be
    sold to cover total production cost.
    • It helps the business to determine the point
    in the business operation that can be
    considered safe.
    • Hence, the break-even point is usually
    known as a measure of the margin of
    safety
    Calculating the break-even
    point
    • Fixed Costs: costs that typically do not change, or
    change only slightly.
    • Sales Price per Unit: the amount of money a
    company is going to charge consumers for just one of
    the products that the calculation is being done for.
    • Variable Costs per Unit: all costs directly tied to the
    production of a product that are fluctuates.
    Calculating the break-even
    point
    • If projected accounting costs for the first month of
    production are as follows:
    • Fixed Costs = Gh¢200.00 (total, for the month)
    • Variable Costs = Gh¢2.00 (per bottle of sobolo
    produced)
    • Sales Price = 3.50 (per bottle)
    Implication?
    • This means that just over 133 bottles of sobolo
    need to be sold to reach the break-even point.

    • With this result, you can be confident that


    potential loss is low

    • The potential reasonable profit is high and


    sustainable.
    Sales promotions
    • Sales promotions are short-term strategies
    to increase sales of products and services
    for a period.

    List some examples …


    Sales promotion strategies

    • Free trials for a limited time

    • Discount coupons

    • Raffle draws

    • Scratch and win

    • Buy-one-get-one-free deals
    Advertising
    • A strategy used to communicate or draw
    the attention of the public to a product or
    service.

    • It involves giving out all information that


    a potential buyer must have about a
    product with the main aim of increasing
    the amount of sale and profit.
    Purpose of Advertising
    1. To project a product(s) or service(s) in the public eye
    with the hope of getting the attention of the people
    (awareness creation).
    2. To persuade potential buys to patronize products or
    services (entice and convince people to buy).
    3. To remind potential customers of the need to have
    the particular product or service by giving out
    information on the features of the product that will
    be of benefit to the customers.
    Types of advertising
    • Informative advertising: is designed specifically to give information about the
    existence of a product or service but can also convince customers to purchase
    a particular product or service on sale.
    • Persuasive advertising: This is aimed at attracting the potential buyers’
    attention and convincing them to develop a desire for a product or service on
    sale and make an actually buy them eventually.
    • Reminder advertising: It is focused on ensuring that, customers stick to the
    one being advertised. They are usually short straight to the point but catchy
    and interesting.
    • Competitive advertising: this focuses on increasing sales of a particular
    product at the expense of other similar products available on the market.
    • Institutional advertising: focuses on promoting or enhancing the image and
    reputation of the business organisation.
    Reading Assignment
     Branding
     Marketing
     Insurance

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