Is Your Business Financially Viable?

Is Your Business Financially Viable?

Year 11 Business Studies Financial Viability Analysis New Zealand Curriculum

What is Financial Viability?

The ability of a business to generate profit consistently over time Key to long-term business survival and growth Requires income to exceed total expenses Essential for making informed business decisions

Key Financial Terms

Variable Costs: Costs that change with production (ingredients, materials) Fixed Costs: Costs that stay the same regardless of sales (rent, insurance) Income/Revenue: Money earned from selling products or services Profit: Income minus total expenses (variable + fixed costs)

Coffee Cart Example

A student runs a coffee cart at school. They pay $50/week rent (fixed cost) and $2 per coffee for ingredients (variable cost). If they sell 100 coffees at $5 each, are they financially viable?

Learning Objectives

Analyze and evaluate business financial viability using income statements Distinguish between variable and fixed costs and their impact on profit Calculate and compare expenses versus income in business scenarios Construct and interpret income statements Discuss pricing strategies and their effects on business viability

Group Work Challenge

Form 3 groups of 5 students each Each group receives a different business scenario: • Group 1: Hamburger Business • Group 2: Coffee Cart Business • Group 3: Small Retail Business 30 minutes to analyze financial viability

Calculating Costs and Income

Step 1: Calculate total variable costs (cost per unit × units sold) Step 2: Add fixed costs to get total expenses Step 3: Calculate total income (selling price × units sold) Step 4: Determine profit or loss (income - total expenses) Use calculators and spreadsheet templates provided

Income Statement Template

Group Presentations & Discussion

Each group presents their income statement and conclusions Discussion points: • Which business seems most financially viable and why? • How do variable costs affect decision-making? • What pricing strategies might improve profitability? • What risks can you identify from your scenario?

Key Learning Summary

Financial viability = Income consistently exceeding expenses Variable costs change with production; fixed costs remain constant Income statements help analyze business profitability Pricing strategies directly impact financial viability These skills help business owners make informed decisions

Extension Challenges

Ready to go deeper? • Investigate break-even analysis for your scenario • Model how increasing fixed vs variable costs affects viability • Explore sensitivity analysis: How do price changes impact profit? • Research real NZ businesses and analyze their financial strategies