Chapter 14 – The final victory lap – Sweet taste of success in week-12
Last week we discussed details of week-11. This how week-12 worked out –
SALES – You sold 120 lemonades this week. You also decide to keep your friend to help out during the last week.
PRICE – Now that there is no competition left and the sales are going great, you had a decision to make – keep the price at $0.50 per cup or raise the price to $0.75 or $1.00 per cup? You decided to raise the price from $0.50 per cup to $0.65 per cup.
CUSTOMERS – You are the only game in town. Your competition “Jack & Jill Lemonade” is closed and you are serving a larger customer base.
PRODUCT AND SERVICES – You are still keeping the quality of lemonade good.
COST – Your decision to raise price was influenced by the increased cost. For example, you had to hire your friend at $10 a week to help with increased work load. Hiring your friend increased your cost and therefore reduced your profits.
Remember your plan was to try your hand in running a business for the summer only. You have been doing it for the last 12 weeks. If you decide to close the lemonade business at the end of this week how will you distribute profits to shareholders and pay-off the loan?
You will need to do the following to calculate-
1. You started with $100 and at the end of 12 weeks you now have $390.75. This is a big pot of money. Is this all your money? Of course not, so who do you share this money with and how?
2. FIRST PAY YOUR LOANS (OR DEBT) – It is always good to build a good credit history – pay your debts first. Remember, your parent loaned you $35 at 12% annual interest. 12% annual rate translates into a daily interest rate of 12%/365. You used $35 for 12 weeks or total of 96 days (12 weeks X 7days per week). So how much is the interest amount you must pay with the principal of $35?
Interest amount (I) = Principal loan amount (P) X Annual Interest rate (R) X Number of days for loan (T) ÷ total days in a year (Y).
3. SECOND YOU PAY THE EQUITY HOLDERS or SHAREHOLDERS – Remember, your five good friends who agreed to pay $5 each, a total of $25 to help you start the lemonade business. After you have paid of loans, now it is time to share the rest of profits with your friends (the Equity or shareholders), but how?
After you have paid off your loans the left amount $390.75 – $35.97 = $354.78 will be shared with the rest of money providers on a pro rata basis, in other words proportional to how much each initially invested. In this case, the total initial investment was $65. Of $65, your savings of $40 was 62% and five friends contribution of $25 was 38% of the total investment. Therefore, monies will be shared 62% and 38% to you and your friends respectively. Let’s discuss it in the next chapter.
Keep up the good work! This is how your week-12 numbers look –