Question

directions read the case study and answer the questions below fully. ava realized her cash balance fluctuated as her business grew. she tracked cash inflows and outflows to ensure she could pay her screen printer before customer payments arrived. she ran what - if scenarios like: what if shirt costs rose by 20%? what if she hired a third intern? what if sales dropped during winter break? her analysis helped her create a rolling cash forecast and identify her break - even point (85 shirts/month). she presented this at unl’s new venture competition and won $2,500 in seed funding. reflection questions: 13. what do ava’s what - if scenarios tell us about financial planning? 14. why was her break - even analysis valuable in her pitch? 15. what actions could ava take to minimize her business risk? discussion prompts (for class or groups) 16. what if t - shirt costs increase by 20%? 17. what if sales drop during winter break? 18. what if ava hires another student to help with fulfillment? 19. describe one what - if scenario you think ava should consider. 20. what are three things ava can do to manage or reduce risk?

Explanation:

1. Ava's 'what - if' scenarios show that financial planning involves anticipating various potential changes and risks to ensure solvency and make informed decisions. It is proactive and considers multiple possible future states.
2. The break - even analysis was valuable in her pitch as it demonstrated a clear understanding of the minimum sales volume required to cover costs. It provided tangible evidence of the business's viability and potential profitability.
3. Ava could diversify her product line, negotiate better contracts with suppliers to lock in costs, and build a customer loyalty program to maintain sales levels.
4. If T - shirt costs increase by 20%, Ava may need to raise selling prices, find new suppliers, or reduce other costs to maintain profit margins.
5. If sales drop during winter break, she could offer seasonal promotions, target a different customer segment (e.g., holiday gift - givers), or reduce inventory levels.
6. If Ava hires another student for fulfillment, she may see increased efficiency, but also higher labor costs. She would need to assess if the additional sales volume justifies the expense.
7. One 'what - if' scenario could be what if a major competitor enters the market with a similar product at a lower price. Ava would then need to consider how to differentiate her product or adjust her pricing strategy.
8. Three things Ava can do to manage or reduce risk are: establish an emergency fund for unexpected costs, build long - term relationships with reliable suppliers, and conduct regular market research to stay ahead of trends and competition.

Answer:

1. Financial planning is about anticipating risks and changes.
2. It shows business viability and profitability potential.
3. Diversify products, negotiate with suppliers, build customer loyalty.
4. Raise prices, find new suppliers, cut other costs.
5. Offer promotions, target new segments, reduce inventory.
6. Increased efficiency but higher labor costs, assess sales volume.
7. What if a major competitor enters with a lower - priced similar product.
8. Establish emergency fund, build supplier relationships, conduct market research.