Let us assume that you, during a summer job, consider starting a summer business with the value proposition: ‘fresh-pressed organic orange juice on the go 24/7’. The pop-up shop will be located in a small, but popular and swinging city during the summer months (it will be open from June to October).

(a) Establish a frst ‘forecast income statement’ (budget of result)

by estimating:

• anticipated revenues; and

• anticipated costs.

Revenues in this case come from customers paying cash over the desk

(money or card). The price is set to 10 per glass (highest quality and big). The crux is to estimate how many customers/glasses we can expect to deliver per minute/hour/day/week/month. After some investigations you guesstimate that on average, over the 24 hours, it’s reasonable to count on: fve glasses sold per hour in June, seven in July, ten in August and six in September.

Costs After more inquires and studies of ‘industrial prices and norms’, you are fairly confdent that you have a frst estimate over the costs involved:

Variable costs Oranges 1.20/glass Cup, straw, serviette 0.05 Fixed costs Staf 73,200 (25 hours)

Marketplace rent (fee) 2,000 Marketing 500 Insurance 200 Interests 200 Depreciation (orange squeezer) 150 Leasing (cash terminal) 150 Contingency costs 200 Calculate a frst income statement (also ‘budget of result’ or ‘proft or loss statement’) following the format from the chapter.
Is the venture proftable under these assumptions? What is the result?
What is the break-even point? Will it be worthwhile? Is it realistic?

(b) Build a business model using spreadsheet software (like Excel)
using the ‘income statement’ format from the chapter, including formulas with the obvious summations.

(c) Complement the model with cells for break-even in units and turnover and corresponding formulas to get the results instantly and automatically. Test!
What is the break-even in units? In turnover?

(d) Complement with cells for gross proft, gross margin, net margin and corresponding formulas. Test!

(e) Improve and adjust the model by breaking out a ‘simulation input area’ with parameters you want to vary in order to learn more about the consequences if you change value (e.g. price per unit, variable costs, sales per month for month, cost of staf, etc.). This design allows for fnding answers to potential ‘What happens if . . . ?’ questions.
Parameters for simulations Price per unit/glass 10 Variable costs per unit 1.25 Sales/hour June 5 Sales/hour July 7 Sales/hour August 10 Sales/hour September 6 Cost of staf 73,200 Insert proper formulas in the model to make it work correctly! Test!
(f ) Simulate and respond to the following questions. Return to the start values after answering a question.
What happens with the gross margin, break-even and result, all other things equal, if:
The price per unit sets to 5?
The price per unit sets to 10?

What happens with the gross margin, break-even and result if:
The variable cost changes to 2.50 (crop failure)?
The variable cost changes to 0.75 (market surplus)?
What happens with the result if August is cold and rainy and revenue decreases to 4?
What happens if the price sets to 5 and at the same time the variable cost becomes 2.50?
What happens if selling/delivery turns out to be the bottleneck in August (long lines to buy) and you therefor forecast an increase in sales/
hour to 14 by recruiting one more in staf to a cost of 6,200 for the eight peak hours/day?
What happens if . . . ? Use your imagination and test out diferent scenarios.
You might set up a test protocol to make your inquires more systematic and fruitful.
(g) Refne the model in the direction the analyses and your curiosity goes. If, for example, cost of staf seems to defne a major part of the result, specify the totality in its founding pieces and make them easy to vary, study and learn from.
(h) Discuss the model’s capacity to match your goal in reality if you take the idea to realization. Ask yourself:
Is it too simple to guide our decisions?
Should we complicate it more to come closer to reality?
Should we include VAT and other taxes?
Should staf be regarded as a variable cost?
Where do we fnd compensation for your (the owners) laid-in work, risk-taking, insertion of own money, etc.?
(i) Create some graphs to illustrate and support your understanding, for example as shown in Figure 7.16.