Break-even Analysis and Financial Statements

This assignment delves into the world of break-even analysis, exploring its concept, formula, and graphical representation through Illustration 1. The provided references offer insights into managing resources, coopetition, project scheduling, and external innovation. It highlights the significance of break-even point calculation in business decision-making.

Unit 29- Managing & Running
a Small Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Main considerations to address while planning and allocating resources to achieve
business objectives......................................................................................................................1
TASK 2............................................................................................................................................2
P2. Explaining and evaluating different processes of customer relationship management in
small business.............................................................................................................................2
P3. The way development of small business takes place transnationally along with its benefits
and drawbacks.............................................................................................................................4
TASK 3............................................................................................................................................5
P4. Annual itemised monthly cash flow forecast showing fixed and variable costs against
income.........................................................................................................................................5
P5. Application of break-even analysis in organisation..............................................................8
P6. Important financial statements of organisation with respect to the way they contribute to
successful management...............................................................................................................9
TASK 4..........................................................................................................................................10
P7. Implications of key legislation and regulations on small businesses or social enterprises.10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Running any type of business requires several efforts as well as time. Owners of a small
business are responsible for managing every operation in an enterprise. There are many factors
which are needed to be managed. Accomplishment of goals can be easily done through effective
management. Managing small business requires every businessman to use combination of
knowledge, education and expertise for running a company. This report includes factors which
are needed to be considered while allocating resources. Evaluation of different processes
associated with customer relationship management has been conducted. Apart from this, benefits
and disadvantages of developing a business transnationally are depicted along with monthly cash
flow of Ensoft Ltd. for reflecting variable and fixed cost. Also, application of break-even
analysis is discussed in context of selected company. Key financial statements are interpreted for
contributing in successful management as well. Further, implications of key legislations and
regulations on small businesses are discussed.
TASK 1
P1. Main considerations to address while planning and allocating resources to achieve business
objectives
For planning various kinds of projects, proper resource planning is required. Major
objectives behind setting up a structure is the allocation of several inventories. There are some
major considerations needed to be taken in consideration that are discussed as below:
Determination of Scope- Before any allocation or management of resources, it is
important to assess the scope of project according to which right decision is taken for deciding
appropriate amount of resources required and its effective management on time.
Identifying Resources- When the objective of project is determined and budget of a
structure is approved, next step comes for identification of necessary inventories required for
successful completion of every activity involved in particular assignment (Lin and Chong, 2017).
For this, there is a need for formulating a list of resources and their amount. After this, it should
be approved by higher authorities so that amendments can be one in an effective manner.
Realistic Approach- It must be taken in consideration that while planning as well as
allocation of various inventories, approach must be realistic that includes all those influential
factors which can affect the supply chain of resources. Apart from this, factors like time and cost
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factor have to be taken in consideration as they are important elements for determining success
of implementing any particular input for deriving an output.
Use of Technology- It is very essential to use every resource in an optimal manner. This
can be achieved through use of technical tools that can assist the perfect requirement, scheduling
and allocation of resources. These tools increase the efficiency of utilising them in an effective
manner. There are some software that can be used for efficacious management which focuses on
least wastage and more outcomes derived from inputs (Cheng and et.al., 2015). It also eliminates
the scenario of surplus or scarcity of inventories which can impact productivity of a business.
Apart from this, one can handle even complex calculations which are involved in the planning of
resources which are related with software solutions for clients.
TASK 2
P2. Explaining and evaluating different processes of customer relationship management in small
business
Customer relationship management or CRM is a type of strategy which an organization
uses to retain its customers. In a small business like Ensoft Ltd, there is a need to plan right kind
of strategies in between employees and customers to maintain a healthy relationship between
them. Employees must learn about their customer's feedbacks and reviews in order to improve
their operations and software quality (Schaper and et.al., 2014). Some tips for company to
develop a strategy for winning customer retention are:
 Setting a destination- CRM helps to achieve the set goals and objectives of organisation,
to determine goals and then plan accordingly. Also, it helps to break the goals in sections
and divide them into small sub-groups. Ensoft Ltd divides their work into small parts and
distribute among them so that operation can be completed quickly and they can focus
more on customers. They are required to provide quality software service to its customers
in order to retain them for a long time. Company tries to build consistency of customers.
To increase the level of sales in organization, they focus on repeatable sales process.
 Prioritizing customers- A business is required to treat all its customers in the same
manner. They should give equal attention to everybody. Ensoft Ltd is getting its success
because they prioritize all its customers in an equal manner in order to generate profits. It
is often seen that old customers spend much more than the new ones.
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 Keep a track on customers- The structure of CRM is made in such a manner that helps
them to keep a track on customers at every stage. Ensoft Ltd has succeeded in
maintaining CRM at their workplace. They keep a track on social media platform of
buyers and record what all they share and buy from there. This process helps company
and give them edge to understand what customers prefer, what expectations they have
from company in the future and services they would prefer.
 Customer portfolio analysis- This is another important step which helps in identifying
the current and future value of its customers and helps to allocate resources according to
different group of customers. It helps in defining and managing the clients. Ensoft Ltd
focuses mainly on US product vendors and deliver software solutions. They provide their
services to people who have large corporate business and usage internet.
 Customer familiarity- This means getting familiar with every individual customer in an
organization as well as maintaining a relationship by providing the best services and
knowing customers which includes everything from their taste of purchase, how often
they purchase as well as differences in their buying habits. Ensoft Ltd has made a
customer database which helps to gather information and gives an opportunity to get
familiar with buyers.
 Collection of data- Consolidation of complete data belongs to customers like record of
their purchases and past communication as well as contact information which is easily
approachable. In Ensoft Ltd, every employee has easy accessibility of its customers in
order to keep a record. This helps the staff to win more deals in short time span. They try
to meet the needs and wants of customers by recording their feedback and reviews as
well as keeping a touch with them.
 Development of network of supply chain- It refers to find and develop a strong bond
with the network of supply chain, organization and people who are important for growth
of business. Ensoft ltd maintains a relationship in between its suppliers, investors,
partners, customers and employees. Supply chain helps to remove few networks which
help to offer software at cheaper rate. Once company has identified their targeted
customers, they move further in order to create and develop value proposition for its
customers. They also concentrate on creating values for the organization.
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P3. The way development of small business takes place transnationally along with its benefits
and drawbacks
Transnational business is one which carries out their business in the international market.
They do investment in assets and operations of the foreign market. They are different from
international, global business model and multinational. A transnational business is one which has
headquarter in one country and have their franchise or chain of network in other nations but are
operated from main office. It is one which focuses on controlling all the businesses. Controlling
is about synchronizing activities of all departments present in different parts of the world. Being
a small business, Ensoft Ltd can expand their business globally by following various steps:
 E-distribution channel- With the expansion in use of internet and social media
marketing, online marketing has become backbone of small business. It has given a
platform to expand with small amount of investment which will benefit them for many
years. Ensoft can use web to sell their software and reach at a large number of customers
around the world. There are chances that company may have to pay some shipping
charges and tax cost but this is the first-class medium for enlargement of small business.
 Partnership- Any business seeking to expand can join their hands and become partners
as per the agreement of share. Ensoft ltd can become partner with any international firm
which is engaged in software development which will help them to improve their
networks (Le Roy and Czakon, 2016). Since, company is having profits from the last
many years, so they plan expansion by partnership.
 Joint venture- Ensoft can expand in the global market by joint venture. Taking up some
international projects and completing them successfully may increase their name and
fame. Company will have to join with software companies to expand.
 Franchising and licensing- Ensoft can use methods of licensing and franchising. They
can give their license to companies located internationally to use technology, copyright
and other intellectual rights for specified period.
 Turn key projects- Ensoft can use this strategy in which a company has to set up their
technology and plant in a factory as well as sell them to another foreign firm. Company
buying that technology and plant knows about all your strategies and working methods.
All they have to do is open the gate and start working.
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 Subsidiaries- Ensoft can acquire other local brands in other countries then opening new
one. Acquiring a firm for vertical or horizontal integration helps in expansion and growth
in other countries.
 Branches- This is the most simple and straightforward manner in which Ensoft can
expand in foreign country.
Advantages and disadvantages
Advantages of transnational business
E market has helped Ensoft to expand its global presence in international market by
reaching at a large number of customers of different culture and segments who are interested in
consuming their products. Organization has targeted its customers properly in local and
international market and nothing can stop them from growing. Their strategies for expansion
transnationally will attract more customers. Marketing through social media platform has helped
many other small companies to grow (Taneja and Toombs, 2014). Usage of branding tools to
showcase the product and service can also help to expand and attract new customers. Expansion
globally also helps to set-off losses which a company would have faced during period of
recession. It gives a recognition to brand and increase the competition.
Disadvantages of transnational business
It is advantageous to expand globally but there are many drawbacks too. For starting a
business in international market, it requires a huge amount of investment. Organization like
Ensoft Ltd has to be patient enough for starting a new business. It requires a lot of research, time
and efforts. There is a need to appoint a promoter for the promotion. They will have to handle
many contacts as well as comply with rules and regulations of country in which they are
operating. They face the problem of language which is another issue and usually it is seen that it
takes many efforts for small business to adopt a new culture. Their establishment is expensive.
For large corporations, branding is not that important due to their well-known existence but for a
small company, it is a challenge.
TASK 3
P4. Annual itemised monthly cash flow forecast showing fixed and variable costs against income
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Budgeted cash flow for operations of Ensof Ltd.
Particulars
Initial
investme
nt Jan Feb March April May June July Aug Sep Oct Nov Dec
Total software
sold 15 18 29 36 42 52 59 62 68 72 75 85
Product
(software to
construction
business)
softwar
e
softwa
re
softwa
re
softwa
re
softwar
e software
softwar
e
softwar
e
softwar
e
softw
are
softwar
e
softwa
re
Average
selling price 325 325 325 325 325 325 325 325 325 325 325 325
Total revenue 4875 5850 9425 11700 13650 16900 19175 20150 22100 23400 24375 27625
Total software
sold 16 18 26 35 49 52 59 62 69 78 95 99
Product (MC3) MC3 MC3 MC3 MC3 MC3 MC3 MC3 MC3 MC3 MC3 MC3 MC3
Average
selling price 279 279 279 279 279 279 279 279 279 279 279 279
Total revenue 4464 5022 7254 9765 13671 14508 16461 17298 19251 21762 26505 27621
Total cash
inflows 9339 10872 16679 21465 27321 31408 35636 37448 41351 45162 50880 55246
Cash outflows
Advertising 250 250 250 250 250 250 250 250 250 250 250 250
Salary 420 420 420 420 420 420 420 420 420 420 420 420
Payments to
creditors 420 459 593 658 700 720 782 820 854 954 995 1025
Interest on
bank
1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500
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borrowings
Repair and
Maintenance 220 0 260 210 350 210 541 564 620 651 725 851
Computers
installation 8500
Total Cash
outflows 8500 2810 2629 3023 3038 3220 3100 3493 3554 3644 3775 3890 4046
Net cash flow -8500 6529 8243 13656 18427 24101 28308 32143 33894 37707 41387 46990 51200
Opining cash
balance 25000 40029 46558 54801 68457 86884 110985 139293 171436 205330
24303
7 284424
33141
4
Closing cash
balance 16500 46558 54801 68457 86884 110985 139293 171436 205330 243037
28442
4 331414
38261
4
Variable cost: This is a cost which changes with variation in production level. This cost
changes totally with a constant unit cost that is with an increase in production units, this will
increase and with a decrease in production variable cost will also reduce. This cost remains
constant in per unit and changes in totality (Lakis and Masiulevičius, 2017). In this budgeted
cash flow, variable costs are payment to creditors and expenses in repair and maintenance. Both
these costs are changing in 12 months. With an increment in production, repair and maintenance
cost will also increase. Payment to creditors do change with production to increase production in
Ensoft. More raw material will be required and payment to creditors will be made on a later date.
Fixed cost: This cost does change with the level of production. In case there is no
production, then also this cost has to be met. As a variable cost, these expenses do not change
with the level of production or sales. This cost is incurred for those expenses which are essential
for Ensoft without any relevance from production. This cost does not change in totality but
changes per unit. In the present budgeted cash flow statement, fixed expenditure are interest on
bank loan, advertisement and salary expenses. This payment has to be made by Ensoft whether
there is a production or sales of its software or not.
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The above budget cash forecast is for Ensof Ltd which present for the different types of
software generated by business and its sales is forecasted for a period of 12 months. The slea are
expected to rise with every month with increase the variable cost on proportionate basis and
fixed pricing remaining the same. The opening outflow for the project is determined at a level of
8500. and by the year end net cash flow is estimate to reach the level of 51200 as compared t the
cash floe of 6529 in January.
P5. Application of break-even analysis in organisation
By break even analysis, it means to determine a point of sale in which Ensoft will be at
no profit & no loss situation. This is a point from where profitability of Ensoft will start. It means
after reaching this point, company will start earning profits (Break even analysis, 2018). Below
this point earning are less to meet statutory expenses and at this point earnings are just equal to
its expenses. With break-even analysis, management of Ensoft can determine the units of
software it is required to sale in a month or year to cover its cost of carrying on business. The
costs included in this calculation are both fixed and variable.
Break even analysis is a technique used by management of the organisation. This
basically categorises the production cost between variable (cost changes with change in level of
output) and fixed (cost remains same irrespective of level of production). This helps the business
in understanding the level the company is standing and defines that weather a new service or
produce will be beneficial. It’s a financial calculation for determining the number of products or
services a company should sell to cover its costs.
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Illustration 1: Break-even point
P6. Important financial statements of organisation with respect to the way they contribute to
successful management
Financial statements of an Unilever Plc reflect its financial performance for accounting
year 2015 and 2016. This is also termed as financial reporting through which complete data and
information related with business is presented in a particular format. Preparation of these
financial statements is mandatory for Unilever Plc. This will provide relevant information to
stakeholders and outsiders who have interest in Unilever Plc. and the financial statements of
company include:
 Profit and loss account
 Balance sheet
 Cash flow statement
 Statement of shareholders’ equity
Profit and loss account: This is also called as income statement. This reflects revenues
generated by business and expenses incurred for generation of such income. All the incomes and
expenses of revenue nature are recorded in this account and net profit of Unilever Plc will be
determined. Sales revenue is generated by selling products and operating profits for 2015 were
$7515 and its increased to 7801 in 2016. All revenue expenses are deducted in order to reach at
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net income earned by the organisation (Minnis and Sutherland, 2017). The costs which are
deducted from profit and loss account are rent, salaries, petty cash expenses, depreciations,
stationary expenses, etc. After this, interest on loans and advances are deducted and this amount
is called as profit before taxes. After deduction of tax amount from this, net earnings available
for shareholders is reached. This can be called as pure income which is specifically available for
distribution which is 4909 and 5184 for 2105 and 2016 respectively.
Balance sheet: This is a statement in which all assets and liabilities of Unilever Plc are
present in a particular format prescribed by GAAP. The assets of firm include current and fixed.
Current assets are those which are held for a short period of time such as cash, short term
investment, stock, etc. which amount to 13844 fro 2016 and 12686 for 2015. Fixed assets are
purchased for holding for a long term in business such as plant and machinery, furniture and
fixtures as well as vehicles purely used in business which is also termed as non current assets and
totals to 39612 for 2015 and 42545 for 2016. Liabilities consist of current and long-term debts.
Current liabilities are one which have to be repaid in the near future such as interest payables,
creditors, tax payables, etc. Long term liabilities are those which generally bear interest expense.
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Since the balance sheet projects the exact position of the company,the manager of the company
can achieve better goals by comparing and anylysing the balance sheet of the company
The liabilities of Unilever plc includes current liabilities at 20556 and 20019 for 2015 and 2016
respectively. The non current liabilities amount to 18893 and 16197 for both years. Total equity
of the firm for 2105 was 16082 and for 2016 was 16980.
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Cash flow statement: As the name suggests, this statement is prepared to identify actual
cash flow of Ensoft in an accounting year. This means the actual amount received and paid in
monetary term for a year (Vanauken, Ascigil and Carraher, 2016). Under this, actual income
generated is added in opening cash balance and then all expenses and transactions for which
money is paid are deducted from that total amount which is reached at end, this is called as
closing balance of cash. This amount shall match with actual cash available with the
management of Ensoft.
With the help of cash flow statement,a manager can observe the exact extent of cash inflow and
outflow and can ensure the payment of any kind of debt interest and prevent any unnecessary
expenditure and debt costs
Statement of shareholder' equity: This is a statement which reflects the equity holdings
of Ensoft. This is an important document from which an individual can analyse financial position
and net worth of Ensoft (Klimczak and et.al., 2015). In this, paid up equity and preference share
capital are given along with debentures issued and subscribed and long- term borrowings by
Ensoft. Basically, this statement presents capital structure of Ensoft presenting ratio of equity
capital and debt in its structure.
Statement of Shareholder’s equity helps a manager track the funding received from its owners
and investors, This statement shows changes in the equity of the company’s shareholders over time
and the reasons for these changes.
TASK 4
P7. Implications of key legislation and regulations on small businesses or social enterprises
There are various legislation and regulations which affect small enterprise. Many new
businesses have been added in the list of small business.
 Tax regulations- Most of the small business owners faces issues with taxes. It is
important for small owners to know what to pay and not to pay. Companies set up
business in such a way that they can take rebate from tax (Scott, Schmidt, Zhao and
Homan, 2015). Ensoft Ltd is a small business which helps them to enjoy rebate in
taxation. They get relief from most of the taxes.
 Health and safety act- There are many provisions related to health and safety act which
has impacted small enterprises and their owners. There are many companies which do not
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provide insurance to its employees. Ensoft offers insurance to its employees which
increase their moral and motivate them towards work. They also provide healthy working
hours to their employees. Company holds regular meetings to solve disputes of their
workers. They provide safe and secure working environment to their employees.
 Employment and labour law regulations- For hiring labour and employees in a
country, an organization should be aware of laws of that country (Freeman and Parmar,
2017). Wages should be determined as per the working hours and an extra amount for
overtime is to be paid. Amount of overtime should double the number of hours worked.
They should not discriminate any employee on the basis of caste, colour, creed, age,
disability and religion. Fair wages should be given to all the employees.
 Environmental regulations- Every entity is required to comply with regulation to
protect the environment. They should follow environment protection laws. Rules and
regulations depend upon the type of businesses which are engaged in such activities.
There are many rules and regulations which affect the small-scale business. If there is a
food business, then it is important to serve healthy and nutritious articles. Ensoft ensures
to comply with the environmental safety.
 Paid leave and minimum wage policy- Minimum wages and paid leave policy offered
by many countries have been gaining popularity in many areas. Organisations need to
focus on leaves and provide 4 to 5 days of permission with some sick consent without
cutting wages. This will motivate and boost the confidence of employees. All the
employees in organization whether a man or woman should be paid with fair wages.
There should be no discrimination. All should be treated equally (O'Connell, 2016).
 Other legal issues- There are most common issues faced by the small business owners.
They face high competition with competitors. In order to be active in all business
activities, it is required to make and follow the laws. A company should have legal laws
to solve any issue and take actions against it.
CONCLUSION
From this report, it has been concluded that running and managing a small business is a
difficult job. An organization requires efforts and time management to operate. Objectives can be
accomplished by effective management. Ensoft ltd has been successful in the allocation of
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resources to achieve their objectives. Report has covered different processes of customer
relationship management by which company can focus to retain and get familiar with customers.
Different ways in which business can operate transnationally are also focused here. Report also
included cash flow scrutiny and break-even analysis to determine the level of profits in small
enterprises.
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REFERENCES
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Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Freeman, R.E. and Parmar, B.L., 2017. Managing for Stakeholders and the Purpose of Business.
Johnson, S., 2017. ‘We Don’t Have This Is Mine and This Is His’: Managing Money and The
Character of Conjugality in Kenya. The Journal of Development Studies. 53(5). pp.755-
768.
Klimczak, M. K. and et.al., 2015. Uncertainty in the financial statements: the study of goodwill
disclosures in Polish. J. Krasodomska, K. Świetla (red.), Współczesne uwarunkowania
sprawozdawczości i rewizji finansowej. pp.217-226.
Lakis, V. and Masiulevičius, A., 2017. ACCEPTABLE AUDIT MATERIALITY FOR USERS
OF FINANCIAL STATEMENTS. Journal of Management. 2(31).
Le Roy, F. and Czakon, W., 2016. Managing coopetition: the missing link between strategy and
performance. Industrial Marketing Management. 53(1). pp.3-6.
Lin, Y. K. and Chong, C. S., 2017. Fast GA-based project scheduling for computing resources
allocation in a cloud manufacturing system. Journal of Intelligent Manufacturing. 28(5).
pp.1189-1201.
Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms: Evidence
from small commercial loans. Journal of Accounting Research. 55(1). pp.197-233.
O'Connell, D., 2016. Harvesting external innovation: managing external relationships and
intellectual property. Routledge.
Schaper, M.T. and et.al., 2014. Entrepreneurship and small business.
Scott, R.L. and et.al., 2015. Establishing and managing business-university research partnerships.
In Proc. Conf. for Indus. and Educ. Collaboration (pp. 1-6).
Taneja, S. and Toombs, L., 2014. Putting a face on small businesses: Visibility, viability, and
sustainability the impact of social media on small business marketing. Academy of
marketing studies journal. 18(1). p.249.
Vanauken, H. E., Ascigil, S. and Carraher, S., 2016. Turkish SMEs’ use of financial statements
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Online
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Break even analysis. 2018. [Online]. Available through:
<https://corporatefinanceinstitute.com/resources/knowledge/modeling/break-even-
analysis/>.
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