If you are looking to set up your own manufacturing facility in Singapore, there should be some factors for you to consider as it can be a challenging task for any entrepreneur. Your profit and loss figures identify your sales, expenses and the resulting profit or loss. This information is vital as a financial overview of the viability of the business and as a basis for calculating your tax liability. However, this figure does not detail the actual production unit costs. The income statement does not provide a basis to determine what profit would be if sales were increased. You cannot project a profit from the income statement alone because there are certain expenses that would stay the same, no matter your sales numbers, and certain expenses that would increase or decrease. In addition, the income statement does not provide information relating to the number of units sold.
In order to project increased sales and profits, you could consider breaking down the sales and expenses into a different format, re-categorizing your expenses into variable and fixed costs and create a cost accounting report.
It’s not as tough as it sounds and it is a necessary business tool for entrepreneurs.
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What are expenses faced by a manufacturing business?
There are many types of cost in the manufacturing business such as fixed costs, variable costs, direct and indirect costs. Mapping out your costs will help you conduct business more effectively. It will also help you arrive at the right pricing for your product in the market. Let’s take a look at some of the costs that might be applicable to your business:
A manufacturing business would include costs of materials, packaging, direct labour and any outside subcontracting costs. A variable cost is an expense that changes according to the number of products sold. For example, you manufacture widgets and the cost to produce one is $8. Material cost is $6. Let’s do an analysis of the direct labour cost. The person overseeing the conveyor belt, the inspector and other workers is $2 per widget. If you make 100 widgets your cost is $800. However, if you make 200 widgets, your cost is $1,600 and the cost increases with the quantity produced.
A fixed cost is one that does not change, regardless of sales volume or changes in production levels. List and total the fixed costs the business incurs. To do a costing for the month, add up rent, utilities, insurance, office supplies, administrative salaries, and all the items on your profit and loss statement not included in variable costs. Subtract your fixed costs from the gross profit generated on the variable cost report to see how much you are making or losing every month.
These are costs attributed to production and include the cost of raw materials, labour, machinery and equipment. Fuel and electricity can also be classified as direct costs.
These include costs pertaining to administration, factory overheads, utilities etc. Depreciation of equipment and facilities are also treated as indirect costs. Evaluating all these costs will help you ascertain the cost per unit of your product, which in turn will help you price your product correctly.
Financing your manufacturing business
Manufacturing companies often encounter cash flow problems when their customers pay their invoices late. Late payments make it difficult for businesses to pay operational fees, such as employee salary, electricity, water, rent, etc. You might need a quick loan to tide you over until your customers pay their bills. Financing products like invoice financing can be the answer to such a situation.
Funding Societies offers manufacturing loans and financing options to SMEs that might not meet traditional bank’s requirements. As the largest P2P financing company in South East Asia, we offer competitive SME business loans, which are great short-term financing options. In addition, it offers one of the largest available P2P invoice financing loans (up to $1,000,000) and it is one of the fastest financing options for SMEs (with the disbursement of funds as quick as 1 day)
At Funding Societies securing a loan is easier and quicker so that you get your loan approved to grow your manufacturing business without unwanted hassles.
Disclaimer: The above information is not a loan offer and is provided for information purposes only. The information is not intended to be and does not constitute financial advice or any other advice. All applications are subject to underwriting guidelines and approval.
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