KNOW YOUR NUMBERS
GOLF BALLS
S R E E R T V A I I C L E M I A N N V U F E A S C T T M U E R N I T N G
MEET MY FRIEND, MALLORY When she isn’t busy at the CrossFit gym….
SHE’S A VERY FAMILIAR LOOKING Meet Little Royales SNOW QUEEN www.littleroyales.com
HOW DOES THIS MERMAID PAY THE BILLS?
REVENUE/EXPENSE Revenue Expense Services Price Expense Price Mini Princess Package $250 for 1.5 hours Costumes $300/costume Deluxe Princess $315 for 2 hours Costume Repair & Cleaning $5/party Package Gas $0.50/mile Includes Mini Deluxe Face Paint & Dress Up $2/party Story and Photo Time Crowns $1/party Singalong Other Misc. Supplies $1/party Personal Letter Advertising $20/month Face Paint & Dress Up Attorney Fees $500/first year Crown Ceremony
TYPES OF EXPENSES Expense Price Costumes $300/costume COSTS OF GOODS SOLD (COGS) Costume Repair & $5/party • Would this have been an expense if no Cleaning sales were made? Gas $0.50/mile Face Paint & Dress Up $2/party OPERATING EXPENSES Crowns $1/party • Costs that are independent of the level of sales they produce Other Misc. Supplies $1/party Advertising $20/month Attorney Fees $500/first year
JANUARY 2015 – REVENUE AND EXPENSE • 5 Saturdays and 4 Sundays in January 2015 = 9 party days • 3 parties per day – 2 Mini and 1 Deluxe • 30 miles average roundtrip to/from party Revenue Account Amount/Party Total Mini $250 $4,500 = 18 x $250 Deluxe $315 $2,835 = 9 x $315 Total $7,335 Costs of Goods Sold Acct Amount/Party Total Operating Expenses Repair/Cleaning $5 $135 Costumes $600 Gas $15 $405 Advertising $20 Face Paint/Dress Up $2 $54 Attorney Fees $500 Crowns $1 $27 Total $1,120 Misc. Supplies $1 $27 Total $648
Account January I S Revenue $7,335 N T COGS $648 A C Gross Profit (= Revenue – COGS) $6,687 T O E M Operating Expenses $1,120 M E Operating Income $5,567 (= Gross Profit – Operating Expenses) E Taxes (about 25% of Operating Income) $1,400 N Net Income/Profit $4,167 T (= Operating Income – Taxes)
I S N T A C T O E M M E E N T
Account Amount HOW PROFITABLE IS THIS Revenue $7,335 PRINCESS? COGS $648 • How much of her revenue is Gross Profit (= Revenue – $6,687 profit? COGS) • Gross Profit Margin = Operating Expenses $1,120 (Gross Profit)/Revenue= $6,687/$7,335 = Operating Income $5,567 (= Gross Profit – Operating .91 or 91% Expenses) • That’s a very profitable Taxes (about 25% of Operating $1,400 Income) princess! Net Income/Profit $4,167 (= Operating Income – Taxes)
TAXES FOR PEOPLE VS BUSINESSES • People are taxed BEFORE they pay their expenses • Businesses are taxed AFTER they pay their expenses • If the tax rate is 25%, Mallory is saving $25 on every $100 of expense that is a qualified business expense
C S Don’t go glass slipper shopping just yet, princess… A T How much cash do you really have? A S T H Adjust the Income Statement with: E o Revenue that has been invoiced but not yet paid M For example, princess parties in the last week of January that won’t F be paid until February E L o Expenses that have been paid without cash For example, costumes that were charged on a credit card N O W T
C S A T A S T H E M F E L N O W T
LET’S MAKE AND SELL SOME STUFF Finance for Manufacturing Companies
MEET MY FRIENDS JEFF AND KRISTINA.. When they’re not…well…
THEY ARE THE MAKERS OF WODIES Meet JerkFit www.jerkfit.com
ABOUT JERKFIT • JerkFit was founded in 2014 • JerkFit makes WODies and Nubs to protect hands during CrossFit workouts • JerkFit started on a shoestring business, gave ownership incentives to their photographer/graphic designer, and has never taken out a loan or accumulated debt • WODies and Nubs are manufactured at multiple facilities within the United States • In 2015, with explosive growth, JerkFit turned their garage into a manufacturing warehouse and hired their first employees
QUESTION: How would you determine how many units you had sold in one month?
ANSWER: QUESTION: # of Units Sold in Month How would you determine how = many units you had sold in one # Units in Inventory @ Start of Month month using inventory numbers? + Example: # Units Manufacturing During Month • At the beginning of January, I have 40 WODies in inventory - • During the month of January, I manufactured 10 WODies # Units in Inventory @ End of Month • By the end of January, I had 20 WODies left in inventory • How many WODies did I sell? 30 WODies!
COST TO MANUFACTURE Cost to Manufacture Goods GOODS = Raw Materials Used + Direct Labor + Overhead Expenses
Costs of Goods Sold COSTS OF GOODS SOLD = Cost of Goods in Inventory @ Start of Month Example: + • It costs $5 to make one pair of WODies Cost of Goods Manufactured During Month • At the beginning of January, I have 40 WODies in inventory - • During the month of January, I manufactured 10 Cost of Goods in Inventory @ End of Month WODies • By the end of January, I had 20 WODies left in inventory • What is my cost of goods sold? $200 Inventory @ Start + $50 Manufactured - $100 Inventory @ End = $150 COGS
Cash On Hand Cash You Cash You (or Stuff You Owe B S Owe Other Can Sell For Yourself People Cash) A H L E A E N T C E
B S A H Cash in the Rent (garage): $10k Retained Earnings: Bank: $100k L E Inventory: $30k Wages owed: $20k Advertising: $5k Supply costs owed: A E $5k $135k $35k $100k N T C E
B S A H L E A E N T C E
B S A H L E A E N T C E
HOW MANY WODIES DOES • We want to know how many WODies we have to sell in order to equal our costs. Say IT TAKE TO BREAK EVEN? W is # of WODies sold. Sales: $30 x W FACTS: Costs: $5 x W + $3,000 • Costs $5 to make one pair of WODies • Want Sales = Costs • Sold for $30 each • Fixed costs (salaries, rent, insurance, etc.) is $30 x W = $5 x W + $3,000 $3,000 per month $30 x W - $5 x W = $3,000 $25 x W = $3,000 W = $3,000/$25 = 120 • We must sell 120 WODies per month to break even
QUESTION: If I have an income statement for January, February and March, what are some ways I can predict what the income will be for April? What are some considerations I should keep in mind?
• Let’s say WODies goes on Shark Tank • Mr. Wonderful offers them $2 in exchange for 97% of their company. • Mark Cuban offers them $20k for a 10% stake ownership in the business • What is their business worth according to Mark? (Valuation) • Mark wants to know his Return on Investment (ROI). If WODies makes $100k each year, what will be Mark’s ROI after the first year? • Mark gets 10% x $100k = $10k. He invested $20k. So his ROI is $10k/$20k = 50% • How long will it take Mark to make his money back?
YOUR TURN – MEET MY FRIEND Meet Cupcake Kingdoms MONICA www.cupcakekingdoms.com
YOUR TURN Monica owns a business selling delicious cupcakes to hungry cupcake loving people. Monica’s cupcakes are $ 4.00/cupcake Monica makes her cupcakes with coconut flour, salt, eggs, sprinkles and honey. (Yes, these are gluten free cupcakes, we live in LA). The cost per cupcake is: Coconut Flour $0.50 Salt $0.05 Eggs $0.15 Honey $0.20 Sprinkles $0.40 She also makes cupcake stands to hold her cupcakes. It costs her $1 to make a stand. One stand can hold 10 cupcakes and is included in the price of the cupcakes. Monica hired her husband to deliver the cupcakes for her, paying him $400 per month. She also has to pay the city $35 per month for licenses and insurance, and spends about $20 per month marketing and promoting her cupcakes.
YOUR TURN In September, Monica sold 150 cupcakes. In October, which had a lot of requests for Halloween parties, Monica sold 200 cupcakes, 5 of which included stands. Exercise Create an income statement for Monica’s cupcake kingdom for September and October. Calculate the number of cupcakes she has to sell in order to breakeven. How many cupcakes do you think she might sell in November and December?
I S INCOME STATEMENT September October Revenue 600 800 N T Cost of Goods Sold A C Ingredients 195 260 Stands 0 5 T O Total Cost of Goods Sold 195 265 E M Gross Profit 405 535 M E Operating Expenses Rent 0 0 E Wages 400 400 Licensing and Insurance 35 35 N Marketing 20 20 Total Operating Expenses 455 455 T Operating Income -50 80
B INCOME STATEMENT Break-Even Check Revenue 676 R Fixed Costs 455 Cost of Goods Sold E Revenue per Cupcake 4 Ingredients 220 Stands 0 A Cost per Cupcake 1.3 Total Cost of Goods Sold 220 K Gross Profit 456 4x = 1.3x + 455 Operating Expenses 4x - 1.3x = 455 Rent 0 E Wages 400 2.7x = 455 Licensing and Insurance 35 V x = 455/2.7 169 Marketing 20 Total Operating Expenses 455 E Operating Income 1 N
“Running your own business is HARD. As much work and stress as it is on a daily basis, you can’t beat being your own boss.” – Jeff, Co-Founder of JerkFit/WODies THANK YOU! Resources: • Google Finance • Investopedia • Wikipedia
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