Money
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Perhaps the most important aspect of all is money. It might not be the only reason you want to set up your own business –people become self-employed for lots of different reasons – but money is an important part of any business.
Understanding the money – or finances - is a way of checking if the idea will work. To do this, you’ll need to decide a few things.
Understanding the money – or finances - is a way of checking if the idea will work. To do this, you’ll need to decide a few things.
1 - What are you selling?
You have already described your idea, product or service. Try now to think about what one sale might look like for the business. This is your unit of sale. For some, it might be a piece of jewellery, a sandwich or a box of eggs. For others, it might be a half day training session or an hours gardening.
Although, in reality, each sale will be different, knowing what your sales unit is will make it much easier to understand the money side of your business.
You have already described your idea, product or service. Try now to think about what one sale might look like for the business. This is your unit of sale. For some, it might be a piece of jewellery, a sandwich or a box of eggs. For others, it might be a half day training session or an hours gardening.
Although, in reality, each sale will be different, knowing what your sales unit is will make it much easier to understand the money side of your business.
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2 – How much will you charge?
Think carefully about how much you will charge. There are different ways to do this. You can work out how much it costs you and add a bit, find out what other people charge or what customers would feel is fair.
Try to find out what other people charge for the same type of business as yours.
Think carefully about how much you will charge. There are different ways to do this. You can work out how much it costs you and add a bit, find out what other people charge or what customers would feel is fair.
Try to find out what other people charge for the same type of business as yours.
- How much do they charge?
- Is your product or service exactly the same as theirs?
- You might want to charge a little more – or less - if yours is different
3 – What are your costs?
This gets a bit tricky and introduces some new words. Basically, there are two types of costs when running a business.
Can you work out how much it would cost you for each sale?
Now think about what these costs would be for a year. |
Do your numbers add up?
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Once you know your unit of sale, the amount you will charge and your costs, you can start to see if your idea will work.
One way to do this is to work out the Break-Even point. This can help us to understand the money side of the business.
Break-even is the minimum number of sales you need to make in order to cover all your costs. If you think you will be able to do this in practice, that’s great.
However, if this number feels too high – remember the session of making and doing your idea – it shows that your idea might need more work.
Have a go at completing the break-even form. Don’t forget to ask for help if you need to.
Using the worksheet below, can you work out your break-even point?
One way to do this is to work out the Break-Even point. This can help us to understand the money side of the business.
Break-even is the minimum number of sales you need to make in order to cover all your costs. If you think you will be able to do this in practice, that’s great.
However, if this number feels too high – remember the session of making and doing your idea – it shows that your idea might need more work.
Have a go at completing the break-even form. Don’t forget to ask for help if you need to.
Using the worksheet below, can you work out your break-even point?
Hopefully you’ll now have worked out your
break-even point and be able to think about how many sales are needed to make your idea work. If you thought this might be too much, did you think about charging more or reducing costs? Once you have settled on an idea and think that the number of sales might be manageable, it is time to think about customers. We do this in the next section. |