How to Interpret the Findings of

the Business Plan

Objective:
• To enable learners to assess the findings and results
of the business plan, and
• To enable learners to have a clear idea about the
feasibility of the business idea
 How to Interpret the Findings of
the Business Plan
 Before starting a business, the potential business starter
should be able to answer the following questions:
 Will the business generate enough cash to always allow
liabilities to be paid?
 How many goods or services must the business sell to
cover the costs and to start making benefits?
 What will happen when turnover decreases or costs go up?
 Will the business generate enough money?
• A business starter will need to earn money for his/her own
living expenses, that income tax has to be paid and that if
credit is used, the credit plus interest has to be paid back in
regular installments.
• A look at the cash flow plan will provide information about the
cash situation.
• If during the whole planning period the “Cash at the end of the
month” is always positive, the business stands a good chance
of running smoothly.
How many goods or services must the business sell to
cover the costs and to start making a profit?
• The answer to this question comes from break-even analysis.
• At the break-even point the revenues from sales equal total
costs. Each additional sale will generate profits after the break
even point (BEP).
• In order to calculate the break-even point we have to know the
total amount of indirect costs (also called fixed costs), direct
costs (also called variable costs) and sales turnover.
• The difference between the unit sales price and the direct costs
per unit sold is contribution margin.
Break-even = Indirect costs OR
Contribution margin
Break even = Fixed costs
Sales price – Variable costs
How many goods or services must the business sell to
cover the costs and to start making a profit?
How many goods or services must the business sell to
cover the costs and to start making a profit?
• The above graph shows the relationship between sales, direct
costs and indirect costs.
• The graph indicates, how much sales (or turnover) the business
has to generate, or how many goods have to be sold before the
business makes a profit.
• The earlier the business reaches the break-even point the better
for the business.
• The break-even analysis can show what effect a price rise or
price decrease will have on the break-even point.
• If the market allows it, the price could be increased and the
zone of profit will be reached earlier.
• However, the market does not often allow a price increase.
 What will happen when turnover decreases or costs
go up?
• To know the exact effect of changing prices and or costs on the
cash and profit situation, a sensitivity analysis has to be made.
• A sensitivity analysis measures the impact on project outcomes
of changing one or more key input values about which there is
uncertainty.
• A sensitivity analysis reveals how profitable, or unprofitable, the
project might be if input values for the analysis turn out to be
different from what is assumed in a single-answer approach to
measuring project worth.
• The analysis is easy to realize as it needs only simple
calculations.
 What will happen when turnover decreases or costs
go up?
1. Changing sales: The planned sales turnover of a cash flow
plan will be increase by 5% or 10%. All other figures remain
unchanged. The cash at the end of the month will increase
accordingly. Second step: The planned sales turnover will be
decreased by 5% or 10%. The cash will decrease accordingly
and we will see immediately if the business runs out of cash. If
this is not the case the business has a good margin.
2. Changing costs: Now we look on the costs and do the same
operation by increasing the costs by 5% and 10% while keeping
the other figures unchanged. The cash flow plan will show if
the business runs out of cash or not.
3. Changing sales and costs: The worst case scenario would be
when prices go down and costs go up.
What will happen when turnover decreases or costs
go up?
• The recalculation of the cash flow plan will give the answer
concerning under which scenario the business will fail.
• This analysis shows how sensitive the business reacts to
changes. If a price or sales decrease of 10% would already lead
to cash problems, the business starter should reconsider the
planned set-up of the business and think about measures to
improve profitability.