Task 4 Financial Planning

Financial Planning

Financial planning is one of the most important parts of any business. All companies need to plan a budget for themselves so they know what to spend money on and what to not spend money on throughout the month. In the computer games industry this is important because the company will not be making any money until the game is launched. The budget is used to fund each department of the company over a period of time. Also, a budget is used to see is a department is working correctly, this is because is the department is using too much money, it is clearly making work too advanced for the project and if it is not using enough money, it is clearly not good enough. In financial planning, there are 4 different sectors; fixed costs, variable costs, break-even point and monitoring.

Fixed Costs
Fixed costs are the costs that are necessary for the production of a game and cannot change. The fixed costs are; rent, utilities and staff wages.

For example; I own a game manufacturing plant, where the games are put onto disks, packaged and sold to distributers such as Game and ASDA. In my company I have the fixed costs of publishing it are insurance, utilities, staff wages and rent. This is £20, 000.00 a month in my scenario. Fixed costs affect the net profit of my business. This is because gross profit - fixed cost = net profit.

Variable Costs
Variable costs are the costs that can change in time. These costs are; paper, ink, advertisement and rights to use some software packages.

The variable cost of production can be represented as a percentage. For instance; the cost of the disk, box, ink, paper and wrapping is the variable cost and it may for £1.00 and the disk sold for £10.00. That means that the variable cost is 10% of the total cost. Variable costs affect the gross profit: sale profit - variable costs = gross profit. Also gross profit percentage = gross profit/sales.

Break-Even Point
A break-even point is when enough copies of a game have been sold to no longer be making a loss, but not making a profit.

For my company I have found out that I will need to sell 2223 units to reach my breakeven point.

Monitoring
This is when you compare the actual game expenditure of the month against the budget planning.

In my company I will need to monitor the net profit so I know I have sold my 2223 units and so I know how many more I have sold, so how much profit I have made.