Micro Case
Break Even Economic Analysis
By calculating projected market sales and subtracting from projected expenses a break even analysis is produced.

Make / Buy Decisions
Often this key decision is not thought through. Economics plays a key role.

Example: Business owner writes own business plan seeking $100,000 in emergency funding. By spending over 80 hrs of time in the course of 6 months the owner loses 80 hrs of work time and any profit or cost savings he could have generated in that time. If the business owner does not have the knowledge or expertise to write a coherent and effective business plan, the risk of losing the funding is greater.

Business owner devotes only 10 hrs of time with consult plus consultant cost of 40 hrs times $250 = $10,000 or 10% of value of the loan being sought. Time to produce business plan is 1 month. Risk is greatly reduced and with time shorten from 6 months to 1 month, the Time Value of Money Principle goes into effect with the loan value of $100,000 greater value at the time of the loan than 6 months later. Added benefits are that the owner is devoting time to business while consultant devotes to business plan. Risk factors:

Business owner knows own business best
Business owner knows the competition best
Factors— formal education in business; previous experience in writing plans

Consultant has skills to develop a business plan from interviewing owner to find the critical information needed
Consultant has skills to develop market information
Factors—consultant’s knowledge of industry and business principles.

Business Models
The industry structure and factors driving profitability such as:
- Business models currently being used to make a product or provide a service
- Industry structure whether a group of diverse industry leaders or one leader
- Distribution channels currently being used by the industry
- Pricing structures in affect
- Expense drivers and market opportunities
-Technology impacts
- Vertical and horizontal integration levels and anti-trust concerns
- Business ethics at play