So even before considering starting out in the big bad business world there's something called costs or expenses that need to first be determined. This will then allow you to work out the price of your service or product and the break even point to then of course make sure that there is profit.
There are two different types of costs that need to be considered. The first being the fixed or overhead costs. The costs that will remain the same no matter how much product or service is sold. These types of costs can include such things like the rent, services such as electricity, water, waste and equipment. The other is the variable costs which is generally the costs associated to the consumables and casual labour.
Looking at these more closely if i were to start an online baby shower gift company i would have to consider both of these costs to make sure the venture was viable. I would first look at the fixed costs. These would include the rent of hiring a facility to run the company out of, electricity, internet, phone, water, advertising, web site development, business name registration, legal fees, salaries and alike. These are all costs that need to be paid no matter the output and are constant.
And then we look at the variable costs. These include the consumables that can vary with the amount of product i need or sell. These costs could be the gift boxes/packaging, clothing, cards, freight and any casual labour i require. These costs will increase as the output increases and will decrease if output decreases but the fixed costs will remain the same.
My variable costs can change with the market too. I may have to change suppliers which could decrease or increase my variable costs. Freight charges may increase and again this affects my variable cost.
Once i have both these costs i can then work out what the minimum price per unit to cover all costs which is the break-even price.
Making sure that you have all of your facts, or more importantly calculations, correct is the key cornerstone of going into a business. And if you're looking at a bank investing, this pre work is a requirement. Again it comes back to the planning and being prepared!
