Making plans for a new business...



As you may know, if you still follow me in my social media, you know that I am doing an MBA (Master Business Administration) at Porto Business School.
And, what is better than try to match fashion with management?

Doing my first approach to Management Accounting, I start to tell you what is going in my mind...

Last year I had the idea to start a business related to fashion, namely an affordable luxury brand of rubber shoes, and after thinking a lot about that, I decided to organize all my thoughts and understand if the business can be successful or not.

The name of the project is Saphire and my marketing strategy is about having partnerships with fashion influencers that will be associated with each creation in order to advertise the product and, consequently, the brand. The initial project is to sell rain boots personalized with crystals. I plan the business to start this year, in July but some work will be done before not considering it as a cost. 

In the following table, I present the expected annual costs:
FC- Fixed costs VC- Variable costs

According to that, I just may consider 6 months of working time what will represent....
Variable costs = 13200€
Fixed costs = 136500€
However, I know that we will only do sales 4 months this year.

The average cost of production (PC) of each pair of rain boots is 40€ and the selling price (SP) of each pair is 120€.
According to that, we know that:
Contribution Margin per Unit (CMU) = 120 – 80 = 40€
Contribution Margin Ratio = CMU/SP = 80/12 = 0,67 (approximately)

In order to understand if the business is feasible, I need to know how many pairs need to be sold in order to pay the mentioned fixed costs (BEP).

This way, I can compute operating income (OI) according to this formula:
OI = 120Q – (40Q + 136500) = 80Q – 136500
what allows me to know that 1707 pairs need to be sold this year, what I think that is completely possible to achieve.
(In terms of money, it represents a total of 1707 pairs x 120 € = 204840€ of sales).

For summer, I am thinking about creating sandals so I searched for some information that made me arrive at these values:
PC = 28€
SP = 90€
CMU = 90 – 28 = 62€
I predict to sell 2 pairs of boots for every 3 pairs of sandals sold.
Once I would like to get 50000€ of OI on the next year, I will try to understand how many pairs I need to sell:
Q* = (273000+50000)/69,2 = 4668 pairs in total (approximately)

4668 x 40% = 1868 pairs of rain boots (approximately)
4688 x 60% = 2801 pairs of sandals (approximately)

After analyzing these parameters I think that Saphire can be a really good business, following the values that I defined during that simulation, so I am just one step away of make it works....

Thank you for your attention and stay connected on the following days if you enjoy management as I do.

Have a nice day,

Sofia Rocha Silva

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