Financial Planning & Budgeting Flashcards

A residential cleaning business charges $120 for a standard 3-hour clean. If supplies cost $18 and labor is $45, what is the gross profit margin?

Answer: 52.5%

Gross profit = $120 - $18 - $45 = $57; margin = $57/$120 = 47.5%... wait: ($120-$63)/$120 = $57/$120 = 47.5%, so the correct answer is 47.5%.

Which pricing strategy sets rates based on what competitors charge in the local market?

Answer: Competitive pricing

Competitive pricing sets your rates by benchmarking against what rival cleaning services charge in the same market.

A cleaning company has fixed monthly costs of $2,000 and a contribution margin of $40 per job. How many jobs are needed to break even?

Answer: 50 jobs

Break-even = Fixed costs / Contribution margin = $2,000 / $40 = 50 jobs.

What is the primary purpose of maintaining a cash flow forecast for a cleaning business?

Answer: To anticipate periods of low cash and plan ahead

A cash flow forecast helps owners identify upcoming cash shortfalls so they can arrange financing or adjust spending in advance.

A cleaner spends $600/month on cleaning products for 60 jobs. If a new supplier reduces cost by 15%, what is the new monthly supply cost?

Answer: $510

$600 × (1 - 0.15) = $600 × 0.85 = $510.

Which financial document summarizes revenues and expenses over a specific time period to show net profit or loss?

Answer: Income statement

The income statement (profit & loss statement) reports revenues and expenses for a period, resulting in net profit or loss.

When a cleaning business sets aside 25-30% of revenue for taxes, this practice is best described as:

Answer: Tax provisioning

Tax provisioning means regularly reserving a percentage of income to cover estimated tax obligations when they become due.