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commit.
Having acquired sufficient knowledge and skills on financial management for small business, you
must demonstrate practical competencies in constructing financial statements and in conducting
feasible financial forecasting.
As a new entrepreneur understanding financial management and accounting, forms an integral part of
running your small business. In addition, you should also be able to forecast the financial outcomes
that could result from your decision. The projections of business’s profits, its assets and financial
requirements, and its cash flows are essential in determining whether your business is economically
viable.
Having acquired sufficient knowledge and skills on entrepreneurship and small business management,
you must demonstrate practical competencies in applying a pricing system and promotional planning.
Think of any business you would like to start and answer the following questions:
Question 1
1. By using practical examples, critically discuss how you would applying a pricing system in
your business.
When running a business, especially as an entrepreneur, one of the most critical decisions to make is
pricing. Pricing directly influences customer perception, sales volume, and overall profitability. It
reflects the business’s market positioning and communicates value to the target audience. To arrive
at an optimal pricing strategy, the use of break-even analysis and markup pricing can provide the
necessary financial clarity and direction. However, while these tools are fundamental in determining
feasible price points, several other factors, such as market competition, customer psychology, and
long-term business strategy, also come into play.
Break-Even Analysis in Pricing
Break-even analysis is one of the most fundamental tools in pricing, offering insights into the point
at which sales revenue matches total costs, ensuring the business neither makes a profit nor incurs a
loss. In applying this pricing system to my business, understanding the fixed and variable costs will
be the first step. Fixed costs, such as rent, salaries, insurance, and equipment depreciation, remain
constant regardless of the level of production or sales. On the other hand, variable costs fluctuate
with production and include raw materials, packaging, and direct labor.
For example, let’s assume I own a small bakery. The fixed costs in my business might include
monthly rent of R1,500, salaries of R2,000, and insurance of R200, totaling R3,700 in fixed costs.
The variable costs would be the cost of ingredients for each loaf of bread and packaging, which
amount to R2 per unit. If I intend to sell each loaf for R5, the break-even point in units can be
calculated using the formula:
