1 Business Management A2 2016

2 How much money do you need to get started at the Andel Mall in Prague with an ice-cream corner?Morning hours … 1 customer per minute … 1 ice-cream per purchase Afternoon hours … 3 customers per minute … 2 ice-creams per purchase An average wage per employee … 200 CZK/hr Number of opening hours … 12 hrs 1 ice-cream … 20 CZK

3 Ice-cream corner – a possible scenario for a setupExpenditures: Rent = 30,000 kc Mortgage = 30,000*3(month)=90,000kc Deposit = 30,000kc Business plan = 500,000kc equipment (freezer), suits for employees What about remuneration? HR setup = Employees: Working hours 09:00-21:00 (1 employee: 09:00-15:00, 2 employee 15:00-21:00) 2 people – selling products (1hour – 200kc ) 2-3people – promotion (1hour – 100kc)

4 Ice-cream corner Questions:How can we know the price of the rent? We should phone to Mall administrator or ask somebody who know about it more. Min period of renting is one year. Do we need top manager? -> what for? How much $ would this person generate? (what is the value added) Accountant? (same as top manager) Do we have a delivery of our products? People buy ice-cream themselves Do we need a website? Do LTDs have to have a www by law? In fact, do we have to be a LTD to be inside shopping mall? What about production of an ice cream? Will we resale it or do on our own? If we decide to resale, then who will be our suppliers? If we decide to do on our own, then we need extra office to make an ice cream. What we are going to do? – affects cost of equipment, not so relevant if facts are given Increasing goodwill of our company -> we are not looking to evaluate the company for sale to an investor at this point

5 Ice-cream corner 6. What is the average cost of goods? NOT SALES. – we are planning our costs for a year ahead – it is paid from revenues -> incurred only when sold -> does not increase our planned expenditure 7. Do we have competitors in the mall? – we can walk around the mall to find out without increasing our planned costs 8. On which floor will we stay? It is really important from the marketing point. How many people in average pass in the mall/ in the third floor, for example? Does this help us to determine how much money we need?? This is for revenues – not costs 9. What types of an ice cream will we have? Will we have something extra? Syrups/chocolate/nuts? If yes, then price of an ice-cream should be more expensive. Why irrelevant? Market research – we decide how much money we have available. 11. Do we have to rent or buy a machinery for ice-cream? Which option is more profitable? – to include in our cost calculations

6 Let’s see what answers the following slides will bring.Questions: What we will do if one employee goes sick? Do we need more employees? What kind of employees do we need? (Skills, character, experience) Do they need any break? How long? Is it too expensive to have more employees because of unexpected situations or to have only one employee and when “unexpected situation” occurs look for extra employee and in the worst scenario close the door? Is it our business or franchise? Let’s see what answers the following slides will bring.

7 1. 20 purchase price 2. Revenues:Solutions: 1. 20 purchase price 2. Revenues: Morning time: 9:00 – 12:00 (1 client per minute → 180 clients *20 CZK = 3600 CZK) Afternoon time: 12:00 – 21:00 (3 clients, 2X ice creams → clients* 2 ice creams* 20 CZK = CZK) Total per day: CZK Total per month: 2,052,000 CZK

8 Expenditures: • Salary: 6 hours * 1 employee * 250CZK =1500 CZK Each 6 hours and every second day we are changing employees with total number of them – 4. Total per day: 3000CZK Total per month: 90,000CZK • Rent: 150,000 CZK per month • Cost price of ice creams: 12 CZK per a piece Total per day: 3420 ice creams * 12 CZK = 41,040 CZK Total per month: 41,040 CZK * 30 = 1,231,200 CZK • Utility expenses: 5,000 CZK per month • Equipment cost: 78,000 CZK Total expenditures: 1,554,200 CZK Net profit: 497,800 CZK

9 3. Ice cream we are make by ourselves3. Ice cream we are make by ourselves. From a factory we are order only fresh and natural milk. ( Czech farm factories). Also we are buy fresh fruits, syrups from big shops. 4. In order to rent a place at mall, we have to call to administration or make an appointment. 5. We have 4 employees 6. it is ownership, small business. 7. We have an account in Facebook and Instagram. There are our advertising. Once a month we organize discounts. Also for special customers we have bonus cards.

10 Is 20 CZK cost price or purchase price? Our revenues and expenditures? More questions: Is 20 CZK cost price or purchase price? Our revenues and expenditures? Are ice creams made by us or bought from factory? How we can know the price of the rent? How many employees do we need? Is it our business or franchise? Do we need a website?

11 Another scenario “Ice-cream corner”

12 We started at the Andel Mall in Prague with an ice-cream corner.Morning hours (9:00-12:00) 1 customer per minute - 1 ice-cream per purchase Afternoon hours (12:00-21:00) 3 customers per minute - 2 ice-creams per purchase An average wage per employee is 200 CZK/hr Number of opening hours - 12 hours 1 ice-cream costs 20 CZK

13 Revenue calculation One day revenue = 64,800 + 3,600 = 68,400 CZK1 ice-cream = 20 CZK Morning: 1 customer per min 3 hours = 180 min = 180 customers = 180 ice-creams 180 ice-creams * 20 CZK = 3,600 CZK Afternoon: 3 customers per min, 2 ice-creams per purchase 9 hours = 540 min = 1,620 customers (540*3) = 3,240 ice-creams (1,620*2) 3,240 ice-creams * 20 CZK = 64,800 CZK One day revenue = 64, ,600 = 68,400 CZK One month revenue = 68,400 * 30 days = 2,052,000 CZK

14 Costs Rent = 50,000 CZK (we agreed with shopping mall’s manager Novakov on this amount) Equipment: 2 Refrigerators Ice-cream cone holders Ice-cream spades and dippers Stainless steel steam table food pans and accessories Ice cream cone dispenser All equipment will cost as approx. 200,000 CZK (prices found on the internet)

15 COSTS Suppliers 1 ice-cream = 50g1 box = 3 kg = 60 ice-creams = 500 CZK 1 day we sell 3,420 ice creams it means that we need 57 boxes 1 month we sell 102,600 ice creams = 1,710 boxes Cost of 1,710 boxes = 855,000CZK

16 COSTS Employees 1 day We will have 3 employees in total.Average wage is 200CZK/hour 1 day 9:00-15:00 = 1 employee = 6 hours =1,200CZK (6*200) 15:00-21:00 = 2 employees = 6 hours = 2,400CZK (2*6*200) Salary per day = 3,600CZK Salary per month = 108,000CZK Viz. notes

17 NET PROFIT Net profit = Revenue – Expense Total cost of the first month is 1,213,000CZK (50, , , ,000) * Rent, equipment expenses, cost of ice-creams’ boxes and employees’ salaries Net Profit of first month: 2,052, ,213,000 = 839,000CZK (equipment is initial investment) Next month profit: 1,039,000CZK (without equipment because we already have it)

18 NOTES If morning employee is sick loss is = 25200-1200 ~ 24000CZKThe loss is not that big, so in case, that we couldn’t find immediately new employee in the morning, we can close the corner for morning hours. Meanwhile we will looking for an extra employee or if other our employees are available they can work in morning hours. Rent price will include: Electricity Insurance Internet

19 Question How many employees do we need? Per day?3 employees. One employee is in morning hours, two employees are in afternoon hours. Why two employees afternoon? Because afternoon there are a lot of customers, and more employee will be better. What we will do if one employee goes sick? And also they can replace each other if unexpected situation occurs (illness or smth like this). The loss is not that big, so in case, that we couldn’t find immediately new employee in the morning, we can close the corner for morning hours. Meanwhile we will looking for an extra employee or if other our employees are available they can work in morning hours. Do we need more employees? No, we don’t

20 What kind of employees do we need? (Skills, experiences, character)We need friendly, open-minded persons. It doesn’t matter if they don’t have any experiences. Do they need any break? How long? Do we have to test candidates? Or teach? Do we make ice-creams by ourselves? No, we have suppliers. And we buy ice-creams in boxes How many flavors do we need? Do we need suppliers for materials? What kind of equipment do we need? What if machine will stop working? In this case, how many machines we need? Do we need refrigerator for ice-creams’ reserve? What are our marketing tools? (Posters, web-sites & etc.) Who will deal with that? Interns? Students?

21 Another scenario Number of ice-creams sold in a day: 3720 ice-creams/day Sales: CZK ( 3720*20 CZK)/ day 2 232 000 CZK/ month Working hours: from 10:00 till 23:00 – according to the working hours of the mall’s restaurants Employees: 8 employees, but part-time 1st works from 10:00 – 17:00 = 7 hours in total 2nd works from 12:00 – 17:00 = 5 hours in total. Since it was given that there are more customers from the afternoon, one employee will not be able to serve 6 clients in a minute. Thus, second employee is needed for a help. 3rd works from 17:00 – 23:00 = 6 hours in total 4th works from 17:00 – 23:00 = 6 hours in total Rest 4 employees will work during next day (they will work by schedule)

22 Another scenario continued

23 Another scenario continued

24 Another scenario continued – marketing?So, we have agreed that we would like to have 13 flavors, that means we should buy 7 machines, because each one produces 2 tastes. Machinery expenses: 7* CZK = CZK Flavors of ice-cream: Creamy Chocolate Strawberry Vanilla Mint Raspberry Coffee Dark chocolate Pistachio Blueberry Cherry Mango Caramel As there are quiet many flavors, we have decided to make a contract with Císařský dvůr Jeneč s.r.o.. This company produces lot of flavor mixtures that are filled into the ice-cream machine. Cost of mixture: 95 CZK / kg More information on page: We’ve learned that from 1 kg of ice-cream mixture we can take approximately portions. Since we sell 3720 ice-creams per day, we need to buy 58 kg of flavor mixtures of an ice-cream. Source: Mixture expenses: 58 kg * 95 CZK = 5510 CZK – we will spend each day for mixtures. As there is a growing tendency for additions, we would like to offer people syrups, chocolates and so on for additional 5-10 CZK. Thus, we can increase our profit slightly. Some options of additions for people to choose: Chocolate syrup, chips and “chocolate tears” Confectionaries Fresh fruits Nuts Chewing candies and jellies Crumbling biscuits MM's (Skittles) Jam Coconut chips Additional expenses: Euro = 540 CZK if we buy everything online. Online shop:

25 Another scenario continuedHere is a list of possible options: Ice-cream wafer cones Ice-cream wafer cups Plastic cups and spoons Online shop: https://www.woolworths.com.au/Shop/Browse/spreads-breakfast-baking-desserts/ice-cream-cones-wafers If we sell each day 3720 ice-creams, than we need 155 packs of wafers, no matter which, because price is the same for everything. Expenses: 155 packs * $3.10 = $ 480,5 (11 676 CZK)

26 Another scenario continuedQuestions: How can we know the price of the rent? Well, the price was written in the web-site. From 80 to 100 Euro/m2. We took a maximum amount. Do we need top manager? Accountant? Since, our budget is quite limited, we have decided not to hire any other employees. Since we are the owners and we have basic financial knowledge, it will be enough to run a business in few months. And in case, business will make more and more profit, we will hire a manager with accounting and financial knowledge. Do we have a delivery of our products? Not in the first time, because we are just entering the market. We have to know the preferences and tastes of clients. Having delivery of ice-cream means hiring someone more, who will be responsible for delivery. Without profits, we can’t afford it yet. Do we need a website? No, there is no need. It is a new developing start-up. We don’t need to share any contacts, photos, addresses or other information about our product. What about production of an ice cream? Will we resale it or do on our own? Everything related to productivity is written above. What is the average cost of goods? NOT SALES. We are still calculating it. Do we have competitors in the mall? Yes, we do. Our competitors are: AMARENA přízemí FROGURT PEKAŘSTVÍ MARKOL Since our prices on ice-cream are cheaper, it means that the demand on these ice-creams will be higher, because everyone can afford it. According to the research of Ukrainian businessman that had an ice-cream start-up, found that approximate price for an ice-cream should be 1000 time less than the income of the people. We have found out that the average income of employees in Czech Republic is 26 287 CZK. If we divide this amount 1000 times, it would be 26 CZK approximately. But we offer an ice-cream for 20 CZK, and there is still a gap of 6 CZK – that’s why we can offer a huge variety of additions to an ice-cream. It will be still affordable. Source: https://en.wikipedia.org/wiki/List_of_European_countries_by_average_wage

27 Another scenario continuedOn which floor will we stay? It is really important form marketing point. How many people in average pass in the mall/ in the third floor, for example? Well, while calculating the rent expense, we took the maximum price in the amount of 100 Euro/m2. Of course, there were prices of 80 Euro as well. We came to conclusion that more preferable places for the rent have higher price. That is why, we think, that we would have an ice-cream corner on 0 floor. What types of an ice cream will we have? Will we have something extra? Syrups/chocolate/nuts? If yes, then price of an ice-cream should be more expensive. It was written above. Do we have to rent or buy a machinery for ice-cream? Which option is more profitable? It was written above. We preferred buying machinery rather than renting, because the expected revenues supposed to be very high. Of course, we can afford our business to spend money on that. Prices / quality / useful life? All the characteristics were mentioned in the plan. Is the rent price is real? How did you find that? Yes, it is real. Link is written above (in the plan). What we will do if one employee goes sick? We examined this situation in the plan. Do we need more employees? No, we don’t. For new start-up it’s fine to have 8 employees only

28 Yet another scenario We are own company. We must to know how much money we will earn perhaps and from this point we can know how much money we need ( if it will be more or less at the beginning) . we wont be a producer of ice-cream, we buy it for half price of ice-cream from warhouse. Why? Because its less spending instead of making ice -cream First we calculate our revenue = 756 000czk per month Our expenses will be = 164 000czk per month Costs(per month) - renting = 30 000czk Electricity = 5 000czk Salary for 2 employee = czk Other costs ( lighter, cups ets.) = 30 000czk Cost (once) Uniform= 2 000czk Fridge = 15 000czk Documents = 10 000czk Net profit is = 602 000czk So from this points we need for start up 164 000 czk We will work from 9 to 21 o’clock. We don’t need any kind of marketing, web site, etc. , because we earn good amount of money, we don’t care about our competitors. Why? Because we have money. We think, that all this questions about marketing and so on is not good, why??? Because we earn money(you can see above)! This is the goal of business, nothing else, we can spend less for all this items, and make our business more simply, BECOUSE WE EARN A LOT OF MONEY!

29 Finance - Rent Is it going to be just a stand or a room?A: a room becuase a stand would not meet our requirements (space for equipment, place to sit, etc.) What part of the mall should we choose? A: the most frequent part in terms of customers, a A: a part preferably not near to competitors we need to research both factors; observation and internet research are enough for this purpose, - according to this website = two major competitors – Fruitisimo, Amerena How much is a rent? A: 50, 000 CZK according what Mr. Vícek said. A: according to the rent can exceed 50,000 CZK, therefore we decided to set rent expenditure to 50,000-70,000 CZK A: alternative rent regarding to turnover, found on following website: ://zpravy.e15.cz/byznys/obchod-a-sluzby/mene-uspesna-centra-lakaji-na-najem- odvozeny-z-obratu Do we need to pay a deposit? How much is it? A: Negotiation with the mall, we assume that we need to pay it A: 50,000 to 210,000+ CZK according to businss trends in the Czech Republic What are other possibilities to open an ice-cream corner? A: Open-air stands, rent a room in a rush street, a specialized car, a ice-cream stands at festivals and events A: Comparison of other business opportunities!!!

30 Finance - Equipment What sort of ice-cream are we going to open?A: Research of competitors in the Mall Research of the most successful competitors in Prague (e.g.: kam-ma-prasek-vstup-zakazan/ ) What kind of equipment do we need? A: Machines, Furniture, Electronic goods, Decoration, Staff room equipment Do we want to buy or rent the equipment? A: Buy (there are no extraordinarily expensive stuff = renting it does not make sense) Will we buy new or second-hand equipment? A: depends on time pressure Do we want to open the ice-cream corner ASAP? Yes we want but not at the expense of quality A: Research about possibilities to buy second-hand equipment A: Research about prices of new equipment and final evaluation of differences between quality and prices. Who will check the quality? Should we hire a technical expert to check it? No, we can research reliability of equipment or second-hand stores A: We can partly buy equipment from second-hand stores and partly new (especially professional equipment for ice-cream) Finance - Equipment

31 Finance - Equipment What is the price of the equipment?A: 350,000+ CZK A: rearches according to (Ice- cream machines), (furniture, etc.), (other hospitality equipment) Do our potential business partners supply the equipment as well? A: depends on negotiation and contracts

32 Human Resources How many employees do we need?What are opening hours? 9:00 to 23:00 according to cesta-k-nam . Fruitisimo has opening hours 11:00 to 23:00 A: Opening hours should be set from 10:00 to 22:00, or 9:00 to 21:00, or 11:00 to 23:00 We have to set default opening hours and later on analyze if it is efficient Do we want employ full-time or part-time employees? Or do we want both? A: Both because we need somebody skilled and responsible, whilst we need also part- time employees because of lower salaries paid out How many of them do we need? Morning shift = 1 employee (6 hour shift a day) Afternoon shift = 2 employees = one extra employee (6 hour shift a day) Evening shift = 1 employee (6 hour shift a day) Sum of hours per week: 18 hours times per day times seven days is 126 hours A: For 126 hours a week we need 2 full-time employees (each hours a week) and 3 part-time employees (each 15 to 20 hours a week) How much money will we spend on salaries? Do we really have to pay 200 CZK/hour? A: according to and the salaries could reduced to CZK/hour for part-time wokers and 150 CZK/hour for full-time workers A: Alternatively = (80 hours times 120 CZK*(1,34!!!) + 45 hours times CZK)*4,2 = (80* )*4,2= CZK A: (80 hours times 200 CZK*(1,34!!!) + 45 hours times 200 CZK)*4,2 = (80* )*4,2= CZK Human Resources

33 Do we need to hire an employee for administrative work?A: No, we decided to employ two full-time workers, than are supposed to manage basic administration Who is going to be responsible for accountancy? Are we going to have own accountant or outsourced one? A: We need just an outsourced accountant or a company, it would never be profitable for such a small company, however we can compare both possibilities. How much does the outsourced company cost? A: according to sluzby/Vedeni-ucetnictvi/Podvojne/kraj-praha we can assume the expense 5,000 – 7,000 CZ Do we need to train or certificate the employees? How much does it cost? A: We need customer oriented workforce = we do not need train them if we choose experienced employees, we can support them or given them some sorts of feedback but they do not need professional training A: They need certificates from GP about health and permission to work with food Do we need to hire an employee for cleaning the place? A: Responsibility for cleaning should be delagated to evening and morning shifts before opening and closing the shop. Human Resources

34 Human Resources Who is going to be responsible for our employees?Who is going to be responsible for scheduling? Who is going to be responsible for negotiation with business partners (suppliers, etc.) Who is going to be responsible for customer service quality? Do we want to hire a manager or is an owner able to do it by himself/herself? A: Unclear! What else would be manager‘s job? A: The most efficient would be following work arrangement: A: For 126 hours + 15 hours extra managerial job a week we need 2 full-time employees (one of them is also a manager but still he/she works as a regular employee) (each hours a week) and 4 part-time employees (each 15 to 20 hours a week) A: (80 hours times 200 CZK*(1,34!!!) + 60 hours times 200 CZK)*4,2 = (80* )*4,2= CZK CZK bonus for the full-time employee/manager = CZK

35 Business in numbers Revenues:9:00-12:00 = 180 minutes * 20 CZK = CZK 12:00-16:00 = 240 minutes * 120 CZK = CZK 16:00-21:00 = 300 minutes * 20 CZK = CZK = CZK per day Profit: one ice-cream: 2 kg of ice-cream costs approximately 300 CZK (http://www.zmrzlinazopocna.cz/obchod/), one ice-cream is approximately 75 g and wafer is about 1 CZK per piece. 3000/(2000/75)+1= 12,5 CZK per ice-cream Net profit per ice-cream = 20 – 12,5 = 7,5 CZK Net Profit per ice-cream: (180*7,5)+(240*45)+(300*7,5)= CZK per day Profit per month = (14 400*30) – other expenditures = CZK Profit = – (rent) – (employees) – (accounting company) = CZK other expenses have to be deducted (e.g.: insurance, utility, taxes, marketing, etc.) Business in numbers

36 Business in numbers What are additional expenses?A: Insurance and bank fees = – CZK per month (https://www.srovnavac.cz/) A: Utility (elektricity, water consumption) = – CZK per month (http://www.vypocitejto.cz/energie/spotreba- elektriny.html) A: Marketing expenditures Do we need marketing? What sort of marketing strategy should we use? Profit after deduction of all expenses – – = CZK EAT = – ( *0,19) = CZK What about VAT? Are you going to pay additional tax expenses because of VAT?

37 Questions: How can we know the price of the rent? We should phone to Mall administrator, or ask somebody who knows more? A: internet research (e.g.: to etc.) A: a person responsible for the start-up, a manager if there is one Do we need top manager? Accountant? A: We need a person responsible for other employees, and business. A: We do not need an accountant, outsourced accounting company is enough (an accountant‘s salary is at least CZK/month (www.jobs.cz) and outsourced company costs just 5000 to 7000 CZK/mont (to sluzby/Ucetni-sluzby/Vedeni-ucetnictvi/Podvojne/kraj-praha) Do we have a delivery of our products? A: No, we do not. It is possible to research surrounding if there is demand for delivered ice-cream. However, our assumption is that this idea is not appropriate. Do we need a website? A: No, we do not. Our ice-cream corner has to be published in the list of companies in the mall on this website . We consider a website as useless and unprofitable for such sort of company. What about production of an ice cream? Will we resale it or make our own? If we decide to resale, then who will be our suppliers? A: Regarding to the fact we are going to open just one ice-cream corner, we definitely do not need make our own ice-cream, this can be profitable if we were a frenchise. A: We have to compare available suppliers and negotiate about business contracts (e.g.: What is the average cost of goods? A: 2 kg of ice-cream costs approximately 300 CZK (http://www.zmrzlinazopocna.cz/obchod/), one ice-cream is approximately 75 g and wafer is about 1 CZK per piece. A: 3000/(2000/75)+1= 12,5 CZK per ice-cream QUESTIONS

38 QUESTIONS Questions: Do we have competitors in the mall?A: Yes, we do. - according to this website = two major competitors – Fruitisimo, Amerena On which floor will we stay? It is really important from marketing point of view. How many people in average pass in the mall/ in the third floor, for example? A: We cannot rely on lack of competitors on a specific floor. We have to be customer focused and innovative. A: We cannot know the information about frequency of customers at specific places, this would have to be estimate by information gained by observation What types of an ice cream will we have? Will we have something extra? Syrups/chocolate/nuts? If yes, then price of an ice-cream should be more expensive. A: We can run the business with certain types of ice-creams and simultaneously collecting feedbacks and wishes of our customers in order to satisfy their needs and requirements as good as possible. Do we have to rent or buy a machinery for ice-cream? Which option is more profitable? A: Will we buy new or second-hand equipment? A: depends on time pressure Do we want to open the ice-cream corner ASAP? Yes we want but not at the expense of quality A: Research about possibilities to buy second-hand equipment A: Research about prices of new equipment and final evaluation of differences between quality and prices. Who will check the quality? Should we hire a technical expert to check it? No, we can research reliability of equipment or second-hand stores A: We can partly buy equipment from second-hand stores and partly new (especially professional equipment for ice-cream) QUESTIONS

39 QUESTIONS Questions: What we will do if one employee goes sick?A: A business cannot be depend on one employee, there are still 5 more of them who can or have to take extra hours. Do we need more employees? A: No we do not. We have enought employees for all activities and responsibilities. What kind of employees do we need? (Skills, character, experience) A: We need customer oriented people with sense for responsibility. Full-time workers are supposed to be experienced in this branch and part-time workers are not required to be experienced. Do they need any break? How long? A: All shifts do not exceed six hours, therefore no breaks are needed! Is it too expensive to have more employees because of unexpected situations or to have only one employee and when “unexpected situation” occurs look for extra employee and in the worst scenario close the door? A: We have four part-time workers, thus in case something unexpected happened there is possibility to ask them to take some extra hours. Is it our business or franchise? A: It is our business because if it was a franchise we would not have any questions and we would simply follow standards and rules.

40 Salary (barber) = 250 CZK/hour Salary (assistant) = 100 CZK/hour DESCRIPTION Price = 500 CZK 4 heads per hour 3 employees + 1 assistant Salary (barber) = 250 CZK/hour Salary (assistant) = 100 CZK/hour Opening hours: 9:00 – 21:00 (11 hours/day, minus break hour) Break: 14:00 – 15:00

41 Barbers’ schedule 1 2 3 4 5 6 7 8 9 10 AB AC BC 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 A = barber 1 B = barber 2 C = barber 3

42 500 CZK * 4 heads * 11 hours = 22,000 CZK/dayRevenue 500 CZK * 4 heads * 11 hours = 22,000 CZK/day 22,000 CZK * 30 days = 660,000 CZK/month Expenses Initial investment Equipment = 400,000 CZK Documents = 130,000 CZK Marketing = 72,000 CZK Monthly expenses Rent = 100,000 CZK/month (rent includes utilities) 3 Barbers’ salaries = 165,000 CZK/month 2 Assistants’ salaries = 33,000 CZK/month Other expenses (shampoo, brushes & etc.) = 30,000 CZK/month

43 Profit Sum of initial investment = 602,000 CZK Sum of monthly expenses = 328,000 CZK 1st month:660,000 – 602,000 – 328,000=-270,000 CZK/month (negative profit) 2nd month: 660,000 – 328,000 = 332,000 CZK/month

44 Calculations – also a possible scenarioRevenue: 40 heads * 500 CZK = CZK per day Total revenue: CZK * 30 days = CZK Expenses: Salary: 200 CZK * 40 heads * 30 days = CZK Rent: CZK (because of the good location near the center and Palladium Mall) Equipment: ~ CZK (1 hairdresser seat costs ~10000 CZK and shampoos and brushes are not so expensive) Utility expenses: 6000 CZK (huge consumption of water and electricity) Total expenses: CZK to start a business Following expenses: CZK per month after 1st month Net Profit: CZK – CZK = CZK (after only 1 month we will start to make money and in 24 days we will get into BE)

45 Record your questions hereHow come the B-E point is less than a month? Isn’t it too good to be true? Isn’t there a catch? What is the average cost of equipment and accessories? What is the average salary of a good barber? 40,000 / 22 days a month = ? -> / 8 hours a day? What is the actual monthly rent in the Prague center?

46 CASE STUDY Assignment:When do we break-even if we want to open a barber shop? Information: Employees – 2 Salary per hour – 200 CZK Working hours – 10 hours/day Working days – 6 days/week Customers per hour – 4 (IDEAL SCENERIO) 1 (WORST SCENERIO)

47 FIXED COSTS = 1 205 000 CZK Equipment – 350 000 CZK(includes also decoration of the room, all the equipment and tools) We assume to have a one year contract for: Rent – CZK monthly  x 12 = CZK per year Marketing – CZK monthly  x 12 = CZK per year Outsourced Accountant – CZK per year Insurance – CZK per year Electricity – CZK per year = CZK

48 VARIABLE COSTS 4 customers/hour = 130 CZK 1 customer/hour = 430 CZK4 customers per hour = 960 customers/month Labor cost – CZK per customer (400 CZK salary / 4 customers = 100 CZK) 1 customer per hour = 240 customers/month Labor cost – CZK per customer Cost hair products – CZK per customer Cost of water used – CZK per customer 4 customers/hour = CZK 1 customer/hour = CZK

49 BREAK-EVEN POINT 4 customers/hour = Break-even after 2.38 monthBREAK-EVEN POINT CALCULATION TFC = Total fixed costs P = Price per unit (price for a haircut) V = Variable cost per unit 4 CUSTOMERS PER HOUR X = / 500 – 130 X = 2 280 We break-even after 2.38 months (2280/960 customers per month) 1 CUSTOMER PER HOUR X = / 500 – 430 X = We break-even after 71.7 months ( /240 customers per month) We never break-even 4 customers/hour = Break-even after month 1 customer/hour = We never break- even

50 Questions Do we employ our barbers or are they individuals sharing the space? Do we pay hourly wage or are they paid according to how many customers they serve) Does the space need reconstruction or just change of settings? Do we have enough money to start the business Are we eligible to get a loan from bank? Do we need investors? What is our capacity? Can we extend the capacity in case of huge demand? How?

51 Findings -> breaking even = being profitable?How does it relate and what is the difference between break-even point and generating profit? According to the definition, the break-even point is a level of sales at which the profit is zero because sales are equal to fixed costs and variable costs. Break-even point determines how much sales are required to cover the costs and begin to generate profit. Until the business reach break-even point, the business has not earn any profit yet as all the money from revenue has gone to cover the operating costs of the business (Beavers, n.d.). It is important to understand break-even point and calculate it for profit and price analysis.

52 Findings -> why do we want to know when we reach B-E point?Difference between short-term, medium, and long-term financial planning The fundamental part of financial planning is setting financial goals. Business develops strategic financial planning within a short-term, medium-term, and long-term framework (HSBC, 2016). Short-term involves processes that show results within one-year period. It examines the characteristics of the company in the present and develop action plan to improve them.  Medium-term planning results take several years to achieve and it applies more permanent solutions to short-terms issues. The policies and procedures are implemented to avoid short-term problems reoccurrence. In a long-term financial planning, the companies want to solve their problems permanently and reach their overall targets. The company develops strategies that help to adapt and influence its position to achieve long-term goals. It tends to relate to a period of 5 years and more (Markgraf, n.d.). https://financialplanning.hsbc.co.uk/article/86/short-medium-and-long-term-needs