BU121 Lecture Notes - Lecture 10: Variable Cost, Accounts Payable, Sensitivity Analysis

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8 Feb 2016
BU121 – Lecture 10
Forecasting demand
No formula – projections based on research and logic = educated guess you can defend
oNo set answers
Market potential does not equal sales forecast
oForecast depends on plan – scalability
oInvestors always look for scalability – can you reach your markets? Is there a gap
between your production capability and market size?
Top-down forecasting (breakdown)
oMarket potential not just #households
With lawns / likely to mow lawn / care about benefits
Think about who can you remove to make the market smaller but
oStill doesn’t equal sales forecast
Are the people ready to buy your product? How many people have similar
or same product already? What is the yearly rate of buy for your type of
Also consider geographic market operating in
Bottom-up forecasting (buildup)
oWhat you can do given capacity and marketing plan
# stores that sell mowers / # that will carry / # each must sell to meet
target – make sense?
oCompare to breakeven – what you have to do to cover cost, might not be making
money but also not in loss
Sensitivity analysis and contingency plan – once you have researched and found the
oAssumptions to base sensitivity on
Largest/smallest/average competitor
Similar product launch
oMilestone – points that increase valuation of business
Set milestones and reach them
Entrepreneurial Finance
7 principles
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