DEVELOPING BUSINESS

PLAN
By: ERICSON GUIANG CERA
 What is viability?
 Viability is defined as the ability to survive. In a business
sense, that ability to survive is ultimately linked to
financial performance and position.

 A business is viable where either:

 it is returning a profit that is sufficient to provide a return
to the business owner while also meeting its commitments
to business creditors
 it has sufficient cash resources to sustain itself through a
period when it is not returning a profit.
WHAT IS PROFITABILITY?
 is the ability of a business to earn a profit.
A profit is what is left of the revenue a
business generates after it pays all
expenses directly related to the
generation of the revenue, such as
producing a product, and other expenses
related to the conduct of the business
activities.
 Understanding
Profitability
 Profitability is the primary goal of all
business ventures. Without profitability
the business will not survive in the long
run. So measuring current and past
profitability and projecting future
profitability is very important.  
 Understanding Profitability

 Profitability is measured with income and expenses.

Income is money generated from the activities of the
business. For example, if crops and livestock are
produced and sold, income is generated. However,
money coming into the business from activities like
borrowing money do not create income. This is
simply a cash transaction between the business and
the lender to generate cash for operating the
business or buying assets.
Understanding Profitability

 Expenses are the cost of resources used

up or consumed by the activities of the
business. For example, seed corn is an
expense of a farm business because it is
used up in the production process.
Resources such as a machine whose useful
life is more than one year is used up over
a period of years.
 Net Profit Margin

 Net profit margin measures the profitability of your business. The formula is:
 Net profit margin = (net income / net sales) * 100 (We multiply by 100 to make
the result a percentage)
 Let's say you have net income of $100,000 and net sales of $1,000,000. What
is your net profit margin?
 Well, we know net profit margin = (net income / net sales) * 100, so net profit
margin must equal $100,000 divided by $1,000,000 times 100.
 (100,000 / 1,000,000) * 100
 100,000 / 1,000,000 = 0.1.
 The net profit margin equals 0.1 times 100.
 0.1 * 100
 So, the net profit margin in this example is equal to 10%.
 This means that for every dollar you make in sales, you earn a dime in net
income.
 Gross profit margin
 Gross profit margin measures the cost of production.
The formula is:
 Gross profit margin = (gross profit / net sales) * 100.
 Let's say you have a gross profit of $125,000 and a net sales
of $3,750,000. What's your gross margin? Gross profit margin
= (gross profit / net sales) * 100, so in this example
 Gross profit margin = ($125,000 / $3,750,000) * 100
 Therefore the gross profit margin equals 0.03 times 100.
 0.03 * 100
 Gross profit margin = 3%
 A gross margin of 3% means that out of each dollar you make
in sales; you spend a little over 97 cents to produce the
product.
 Operating Margin
 Operating margin tells you how much costs unrelated to producing the
product for sale are cutting into your profits. Costs unrelated to
production can include such things as general business, staff and
administrative expenses of the business. Net operating margin is often
referred to as your earnings before interest and taxes or EBIT. The
formula for this is:
 Operating margin = (operating profit / net sales) * 100
 Let's take a look at an example.
 You have an operating profit of $90,000 and net sales of $1,000,000.
What is your operating margin? Well, we know that operating margin =
(operating profit / net sales) * 100, so:
 Operating margin = ($90,000 / $1,000,000) * 100
 Operating margin equals 0.09 times 100
 0.09 * 100
 The operating margin equals 9%.