Question

An entrepreneur purchased an existing bicycle shop that had between $120,000 and $150,000 worth of sales annually for the past three years. During the first year under new ownership, there was a devastating winter with numerous snowstorms, so sales, which usually pick up in March, were very low until the beginning of May. There is usually an increase in sales between March 1 and June 30 that accounts for 50 percent of the store’s annual revenue. What would the forecasted sales be for the entrepreneur’s first year? What recommendations do you have for the entrepreneur based on your projection?

Answer 1

Forecasted sales: 25% maximum reduction.

Recommendations: try new ways to increase sales during the months left, or reduce its own cost.

Step-by-step explanation:

• If sales usually increase between March 1 and June 30, and this period accounts for 50% of annual revenue, if revenue is proportional to sales, a reduction in sales will reduce revenues.
• Between March 1 and June 30 there are 4 months.
• If sales usually pick up in March and this year they were low until the beggining of May, it means that only 2 of the 4 most productive months were higly productive.
• If 50% of sales are concentrated in this 4 months, and this year 2 of the 4 months were not really productive, a maximum 25% of sales (and hence of revenues) may have lost.
• Therefore, revenues may lower by 25% this year.
• To avoid losses, it is advisable to try new ways to increase sales during the months left, that can consist on doing some advertisement and promotions (related to health care linked to exersice for example), that helps increasing sales in the months left, to compensate the looses of the 2 months. If sales cannot be increased, it is advisable to reduce cost to avoid further looses.