new business module

ESTIMATING INCOME, COST AND PROFIT 83
The most obvious thing to do is to observe competitors who
sell similar products and ask them how much they sell during
a certain period and what prices they charge. Starting entrepreneurs
can then ask themselves if they are likely to sell more
or less and adapt their estimates accordingly.
When estimating income, it is important to be realistic. If you
exaggerate your potential income, you may end up with a
large loss because you bought too many inputs to produce
products you then cannot sell. To be on the safe side, a starting
entrepreneur should estimate conservatively. Remember to
remain a moderate risk taker!
Count only the days you will actually operate the business when
estimating income. The number of days an entrepreneur works
can vary from one business to another, and most people do not
work every day of the year. In trade, it is common to have 25
working days per month for 11 months per year. These numbers
take account of unforeseen events, holidays, sickness, etc.
Remember that there is a connection between the price of a
product and the demand for that product. As mentioned
earlier, the sales price influences the profit margin and the
volume of sales. Consequently, the level at which the sales
price for a product is set has a considerable impact on the
profit generated.
• Profit generated = Volume of sales x Profit margin
Generally, it can be said that the higher the sales price, the
lower the volume of sales and vice versa.
Entrepreneurs have to decide at what price they want to sell
their goods or services. If the price is too low, they will not
cover their costs and generate a loss. If the price is too high,
people will not buy the goods or services.
In most cases, an entrepreneur will not be alone on the market
but face competitors offering similar products. In these cases
it is usually best to take the current market price to estimate
income.