ENTR4800 Class 5 (Part 1): Conducting a Costing Analysis for Social Enterprise
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Transcript of ENTR4800 Class 5 (Part 1): Conducting a Costing Analysis for Social Enterprise
ENTR 4800: Social Entrepreneurship
Class 5 (Part 1): Conducting a Costing Analysis for Social Enterprise
Monday, October 18, 2010
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Instructors: Norm Tasevski ([email protected])
Karim Harji ([email protected])
© Norm Tasevski & Karim Harji
© Norm Tasevski & Karim Harji
Agenda
• SoCap 2010 • What did we learn – Last Week? • Conducting a costing analysis for your social
venture – Constructing the financial model – Scenario analysis (break-even, best-worst)
• After the break…Part 2 (Financing Considerations – Separate Slide Deck)
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© Norm Tasevski & Karim Harji
Last Week – What did we learn?
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© Norm Tasevski & Karim Harji
A caveat…
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• We will construct a real-world costing analysis using…
Why do a costing analysis?
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© Norm Tasevski & Karim Harji
3 Reasons
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Strategy Setting!
Go No-Go Decision!
Making Investors Happy :)!
How do you do a costing analysis for for social enterprise?
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Remember this?... Step 1: Identify Cost Drivers and Revenue Sources for your Business Model!
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-???!
-???!
© Norm Tasevski & Karim Harji
…And this? Step 2: Calculate your margin!
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-???!-???!
© Norm Tasevski & Karim Harji
Costing Analysis Step 2a: Calculate your margin
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• Use Excel (not financial analysis software) – Why?
• List your assumptions (in terms of cost drivers and revenue streams) – Be comprehensive! – List what data you know (in “white” cells), and what data you don’t know
(in “blue” cells)
• Calculate your costs – Use the “here’s how it works…” method
• Calculate your revenues – Again, use “here’s how it works…”
• Determine your margin
© Norm Tasevski & Karim Harji
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Break-Even Analysis – “Unit Sale” Method:
• Breakeven Sales = Total Fixed Costs / Gross Profit per Unit Sale (Note: Gross profit per unit sale = price – per unit variable costs)
– “Percentage of Sales” Method: • Breakeven Sales = Total Fixed Costs / Gross Profit Percentage
(Note: Gross profit percentage = 100% - total variable costs as % of sales)
Best-Worst Scenario Analysis – “What if…” Analysis: Compare your “perfect scenario” (i.e. your baseline)
to various real-world scenarios. For example: • What if… sales volume is 75% of what we projected? 90%? 110% 125% What
would happen to our profit margin? • What if… the # expected customers was 75%/90%/110%/125% what we
projected? What would happen to our profit margin? • What if… there is a change to a cost driver (e.g. transportation costs double, or
a new cost driver is added)? What would happen to profits? • What if… there is a change to a revenue stream (e.g. an expected investor
backs out, or grant funding is smaller than projected)? What happens to profits?
Costing Analysis Step 2b: Conduct Sensitivity Analyses
© Norm Tasevski & Karim Harji
Exercise…
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What Next? Step 3: Turn “blue” cells into “white” cells (i.e. Research!!)!
-???!
-???!
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© Norm Tasevski & Karim Harji
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Break
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© Norm Tasevski & Karim Harji
Now…
…On to Part 2 – Financing Considerations for Social Enterprise
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