KNOW YOUR NUMBERS GOLF BALLS S R E E R T V A I I C L E - - PowerPoint PPT Presentation

KNOW YOUR NUMBERS

GOLF BALLS

S E R V I C E R E T A I L

M A N U F A C T U R I N G

I N V E S T M E N T

MEET MY FRIEND, MALLORY

When she isn’t busy at the CrossFit gym….

SHE’S A VERY FAMILIAR LOOKING SNOW QUEEN

Meet Little Royales www.littleroyales.com

HOW DOES THIS MERMAID PAY THE BILLS?

REVENUE/EXPENSE

Revenue

Services Price Mini Princess Package $250 for 1.5 hours Deluxe Princess Package $315 for 2 hours

Expense

Expense Price Costumes $300/costume Costume Repair & Cleaning $5/party Gas $0.50/mile Face Paint & Dress Up $2/party Crowns $1/party Other Misc. Supplies $1/party Advertising $20/month Attorney Fees $500/first year

Includes Mini Deluxe Story and Photo Time Singalong Personal Letter Face Paint & Dress Up Crown Ceremony

TYPES OF EXPENSES

Expense Price Costumes $300/costume Costume Repair & Cleaning $5/party Gas $0.50/mile Face Paint & Dress Up $2/party Crowns $1/party Other Misc. Supplies $1/party Advertising $20/month Attorney Fees $500/first year

• Would this have been an expense if no

sales were made?

• Costs that are independent of the level
• f sales they produce

COSTS OF GOODS SOLD (COGS) OPERATING EXPENSES

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 Repair/Cleaning $5 $135 Gas $15 $405 Face Paint/Dress Up $2 $54 Crowns $1 $27

• Misc. Supplies

$1 $27 Total $648 Operating Expenses Costumes $600 Advertising $20 Attorney Fees $500 Total $1,120

I N C O M E S T A T E M E N T

Account January Revenue $7,335 COGS $648 Gross Profit (= Revenue – COGS) $6,687 Operating Expenses $1,120 Operating Income (= Gross Profit – Operating Expenses) $5,567 Taxes (about 25% of Operating Income) $1,400 Net Income/Profit (= Operating Income – Taxes) $4,167

I N C O M E S T A T E M E N T

Account Amount Revenue $7,335 COGS $648 Gross Profit (= Revenue – COGS) $6,687 Operating Expenses $1,120 Operating Income (= Gross Profit – Operating Expenses) $5,567 Taxes (about 25% of Operating Income) $1,400 Net Income/Profit (= Operating Income – Taxes) $4,167

HOW PROFITABLE IS THIS PRINCESS?

• How much of her revenue is

profit?

• Gross Profit Margin =

(Gross Profit)/Revenue= $6,687/$7,335 = .91 or 91%

• That’s a very profitable

princess!

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

Adjust the Income Statement with:

• Revenue that has been invoiced but not yet paid
• For example, princess parties in the last week of January that won’t

be paid until February

• Expenses that have been paid without cash
• For example, costumes that were charged on a credit card

C A S H F L O W S T A T E M E N T

Don’t go glass slipper shopping just yet, princess… How much cash do you really have?

C A S H F L O W S T A T E M E N 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?

Example:

• At the beginning of January, I have 40 WODies

in inventory

• During the month of January, I manufactured 10

WODies

• By the end of January, I had 20 WODies left in

inventory

• How many WODies did I sell?

QUESTION:

ANSWER: # of Units Sold in Month = # Units in Inventory @ Start of Month + # Units Manufacturing During Month

• # Units in Inventory @ End of Month

How would you determine how many units you had sold in one month using inventory numbers? 30 WODies!

COST TO MANUFACTURE GOODS

Cost to Manufacture Goods = Raw Materials Used + Direct Labor + Overhead Expenses

COSTS OF GOODS SOLD

Costs of Goods Sold = Cost of Goods in Inventory @ Start of Month + Cost of Goods Manufactured During Month

• Cost of Goods in Inventory @ End of Month

Example:

• It costs $5 to make one pair of WODies
• At the beginning of January, I have 40 WODies

in inventory

• During the month of January, I manufactured 10

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

B A L A N C E S H E E T

Cash On Hand (or Stuff You Can Sell For Cash) Cash You Owe Other People Cash You Owe Yourself

Cash in the Bank: $100k Rent (garage): $10k Retained Earnings: Inventory: $30k Wages owed: $20k Advertising: $5k Supply costs owed: $5k $135k $35k $100k

B A L A N C E S H E E T

B A L A N C E S H E E T

B A L A N C E S H E E T

HOW MANY WODIES DOES IT TAKE TO BREAK EVEN?

• We want to know how many WODies we

have to sell in order to equal our costs. Say W is # of WODies sold. Sales: $30 x W Costs: $5 x W + $3,000

• Want Sales = Costs

$30 x W = $5 x W + $3,000 $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

FACTS:

• Costs $5 to make one pair of WODies
• Sold for $30 each
• Fixed costs (salaries, rent, insurance, etc.) is

$3,000 per month

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
• wnership 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 MONICA

Meet Cupcake Kingdoms 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?

INCOME STATEMENT September October Revenue 600 800 Cost of Goods Sold Ingredients 195 260 Stands 5 Total Cost of Goods Sold 195 265 Gross Profit 405 535 Operating Expenses Rent Wages 400 400 Licensing and Insurance 35 35 Marketing 20 20 Total Operating Expenses 455 455 Operating Income

• 50

80

I N C O M E S T A T E M E N T

INCOME STATEMENT Break-Even Check Revenue 676 Cost of Goods Sold Ingredients 220 Stands Total Cost of Goods Sold 220 Gross Profit 456 Operating Expenses Rent Wages 400 Licensing and Insurance 35 Marketing 20 Total Operating Expenses 455 Operating Income 1

Fixed Costs 455 Revenue per Cupcake 4 Cost per Cupcake 1.3 4x = 1.3x + 455 4x - 1.3x = 455 2.7x = 455 x = 455/2.7 169

B R E A K E V E N

THANK YOU!

Resources:

• Google Finance
• Investopedia
• Wikipedia

“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