Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsCase Study – Adam’s Computer BagsAdam has decided to start his own business and has been doing someresearch. He will sell computer bag to computer manufacturers. He is goingto leave his job and has saved some money to help him go through thestart-up phase. He has decided that in the fi rst year, he is going to focuson getting the business established, so he believes that a small profi t(before interest and tax) of RM5,000 should be achievable. His researchhas shown that the expenses to set up and operate the business will beapproximately RM15,600 for the year.Profi tRM5,000plus operating expensesRM15,600Total cash neededRM20,600From this information, Adam can see that he will need at least RM20,600 tocover the operating expenses and achieve his profit goal. Adam’s researchhas also highlighted that it is reasonable to expect to sell at least 1,000 bagsin the first year. Adam has negotiated with a supplier to provide the bags forthe cost price of RM31.20 each. Now we can work out according to Adam’sestimates, how much sales need to be made to reach the profit goal.Profi tRM5,000plus operating expensesRM15,600Plus cost of1,000 bagsRM31,200(cost of goods sold)Adam will needa total ofRM51,800to achieve his targeted profi tMinimum selling price (RM51,800 divided by the1,000 bags that he will sell)equals to RM51.80 per bag.Adam thinks that he will be able to sell the bag for RM52.00 each. So, at the endof the fi rst year, if all goes according to the plan, his income statement wouldlook like this:13chapter 1 01-21 Eng.indd 138/15/11 5:01:23 PM