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Crunching the numbers
- 2. Points to consider when evaluating Revenue Streams for your business include: ➔ How much are customers willing to pay? ➔ What method of payment is preferred by customers? ➔ What different Revenue Streams can I utilize to improve revenue and cash flow? Revenue Streams
- 3. Types of Revenue Streams Asset Sale Usage Fee Subscription Fees Lending Renting Leasing Licensing Brokerage Fee Advertising
- 4. Potential’s 7 Key Revenue Streams Used in Businesses: https://youtu.be/V8EF7vlUqBI
- 6. Costs incurred when starting your business and creating an MVP: ❏ Materials ❏ Research and Development ❏ Office Supplies ❏ Equipment ❏ Furniture ❏ Goods for Resale ❏ Office Needs- Computer, Phones, Printer ❏ Three Months of Rent/Lease Startup Costs
- 7. Costs incurred regularly to keep your business running: ❏ Rent/Lease ❏ Payroll ❏ Payroll Taxes ❏ Sales Taxes ❏ Utilities: (heat/air/electricity/internet/phone) ❏ Maintenance: (cleaning/trash) ❏ Insurance ❏ Security System ❏ Accounting and Legal Fees ❏ Inventory: Cost of Goods Sold ❏ Marketing ❏ Miscellaneous Ongoing Costs
- 8. Ongoing costs for a business start up will include such things as: ❏ Research Expense ❏ Technology Needs ❏ Borrowing Costs ❏ Business Model Advising Ongoing Costs - Variables for a Startup Rent Payroll Taxes Legal Services Loan Payments Insurance Payments Utilities Marketing Costs
- 10. Budgeting is used to forecast current and future revenue to expenses. Budget Goals: ● Operating cash flow ● Determining Expenses ● Make Financial Decisions Entrepreneurs are responsible for managing their business budget daily, weekly, monthly and annually. Business Budgeting
- 11. Income Statement
- 12. Income Statement Determines the net income or loss for a fiscal period in your business. Subtract expenses from revenue to find out whether you made or lost money. To be in the “black” is to profit. When your business is in the “red” you lost money.
- 13. Financial Education’s Income Statement Tutorial! - Reading an Income Statement! https://youtu.be/HRhMnr8dmWY
- 14. Income Statement
- 15. Income Statement INCOME STATEMENT Student Prepare an income statement using the following information: Interest expense $10,000 Cost of Goods sold $160,000 Marketing expenses $70,000 Administrative expenses $50,000 Sales $400,000 Stock dividends $5,000 Income tax $20,000 Depreciation expense $20,000 Sales Cost of Goods Sold (-) Gross Profit Operating Expense: Marketing Expense (+) Admin. Expense (+) Depreciation expense (+) Total Operating Expense Operating Income Interest Expense (-) Earning Before Taxes Income Tax (-) Net Income $400,000 $160,000 $240,000 $70,000 $20,000 $50,000 $20,000 $140,000 $90,000 $100,000 $10,000 $70,000 What is the firm’s gross profit? What is the operating income? What is the net income?
- 16. Income Statement 1 To help the entrepreneur understand the flow of money in and out of the business, analyze: Create an Excel Spreadsheet and use formulas to calculate the totals for you. Name the tab “Income Statement” Total Revenues = house painting + water blasting Total Operating Expenses • Sum (all operating expenses) Net Income or (Loss) • Total Revenue – Total Operating Expenses
- 17. The Finance Storyteller’s Cash Flow Statement explained: https://youtu.be/mZBjsIYrLvM
- 18. Explains the changes in your cash account during a fiscal period. Cash Flow Statement
- 19. Pricing turns into profit
- 20. To make money or “revenue” entrepreneurs must understand... Wholesale Price - price charged by a distributor Markup Percentage - amount added to wholesale price Retail or Selling Price - what the consumer pays after markup Retail Price - Wholesale Price = PROFIT
- 21. Markup (Excel Spreadsheet) It is critical to understand the Wholesale Price and what Markup Percentage you might apply in order to earn a Profit. Get some practice! “Markup”
- 22. Deliverable: Markup (spreadsheet) It is critical to understand the Wholesale Price and what Markup Percentage you might apply in order to earn a Profit. Get some practice! “Markup”
- 23. Financial Decision Making Return On Investment A ratio that compares the gain or loss from an investment relative to its cost. Although ROI is a ratio, it is typically expressed as a percentage.
- 24. The Five C's of Credit- Banks and Investor Checklist
- 25. Goalry Mall’s Your A+ Guide to the Five C’s of Credit: https://youtu.be/RdxgiywA73A
- 26. Sources for Funding Generating the money to start your business typically requires utilizing different sources. https://www.fundable.com/learn/resources/guides/startup/funding-your-startup (2014)
- 27. Bootstrapping Bootstrapping is building a company from the ground up with nothing but personal savings, and with luck, the cash coming in from the first sales. Bootstrapping is a technique used by individuals in business to overcome obstacles, achieve goals and make improvements through self-sustainable means with no assistance from the outside.
- 28. YEC’s What Is Bootstrapping: https://youtu.be/z47rKs8nXr8
- 29. Deliverable: Funding Sources Innovation is the key to designing a winning product but creativity and due diligence are just as important with funding your startup: “Funding Sources”
Editor's Notes
- Teacher Notes - Students will utilize Google Sheets or Excel throughout the unit in most deliverables If these tools are not available, students can create the forms on a blank sheet of paper
- Teacher Notes - There are numerous ways every business can make money. The three questions on this slide will help your students realize that revenue can be collected from various products and services and can be collected in various ways as well. (Cash, Credit Card, Online Website, Bartering, Various Payment Platforms like Apple Pay).
- Teacher Notes - This link will provide you with definitions for the Revenue Streams on mentioned on this slide. https://strategyzer.uservoice.com/knowledgebase/articles/1194385-how-do-i-use-the-revenue-streams-building-block-of Asset sale The most widely understood Revenue Stream derives from selling ownership rights to a physical product. Amazon.com sells books, music, consumer electronics, and more online. Fiat sells automobiles, which buyers are free to drive, resell, or even destroy. Usage fee This Revenue Stream is generated by the use of a particular service. The more a service is used, the more the customer pays. A telecom operator may charge customers for the number of minutes spent on the phone. A hotel charges customers for the number of nights rooms are used. A package delivery service charges customers for the delivery of a parcel from one location to another. Subscription fees This Revenue Stream is generated by selling continuous access to a service. A gym sells its members monthly or yearly subscriptions in exchange for access to its exercise facilities. World of Warcraft Online, a Web-based computer game, allows users to play its online game in exchange for a monthly subscription fee. Nokia’s Comes with Music service gives users access to a music library for a subscription fee. Lending/Renting/Leasing This Revenue Stream is created by temporarily granting someone the exclusive right to use a particular asset for a fixed period in return for a fee. For the lender this provides the advantage of recurring revenues. Renters or lessees, on the other hand, enjoy the benefits of incurring expenses for only a limited time rather than bearing the full costs of ownership. Zipcar.com provides a good illustration. The company allows customers to rent cars by the hour in North American cities. Zipcar.com’s service has led many people to decide to rent rather than purchase automobiles.
- Teacher Notes - This link will provide you with definitions for the Revenue Streams on mentioned on this slide. https://strategyzer.uservoice.com/knowledgebase/articles/1194385-how-do-i-use-the-revenue-streams-building-block-of Asset sale The most widely understood Revenue Stream derives from selling ownership rights to a physical product. Amazon.com sells books, music, consumer electronics, and more online. Fiat sells automobiles, which buyers are free to drive, resell, or even destroy. Usage fee This Revenue Stream is generated by the use of a particular service. The more a service is used, the more the customer pays. A telecom operator may charge customers for the number of minutes spent on the phone. A hotel charges customers for the number of nights rooms are used. A package delivery service charges customers for the delivery of a parcel from one location to another. Subscription fees This Revenue Stream is generated by selling continuous access to a service. A gym sells its members monthly or yearly subscriptions in exchange for access to its exercise facilities. World of Warcraft Online, a Web-based computer game, allows users to play its online game in exchange for a monthly subscription fee. Nokia’s Comes with Music service gives users access to a music library for a subscription fee. Lending/Renting/Leasing This Revenue Stream is created by temporarily granting someone the exclusive right to use a particular asset for a fixed period in return for a fee. For the lender this provides the advantage of recurring revenues. Renters or lessees, on the other hand, enjoy the benefits of incurring expenses for only a limited time rather than bearing the full costs of ownership. Zipcar.com provides a good illustration. The company allows customers to rent cars by the hour in North American cities. Zipcar.com’s service has led many people to decide to rent rather than purchase automobiles. Licensing This Revenue Stream is generated by giving customers permission to use protected intellectual property in exchange for licensing fees. Licensing allows rightsholders to generate revenues from their property without having to manufacture a product or commercialize a service. Licensing is common in the media industry, where content owners retain copyright while selling usage licenses to third parties. Similarly, in technology sectors patentholders grant other companies the right to use a patented technology in return for a license fee. Brokerage fees This Revenue Stream derives from intermediation services performed on behalf of two or more parties. Credit card providers, for example, earn revenues by taking a percentage of the value of each sales transaction executed between credit card merchants and customers. Brokers and real estate agents earn a commission each time they successfully match a buyer and seller. Advertising This Revenue Stream results from fees for advertising a particular product, service, or brand. Traditionally, the media industry and event organizers relied heavily on revenues from advertising. In recent years other sectors, including software and services, have started relying more heavily on advertising revenues.
- Teacher Notes Explain to students that a as a business owner you will have different kinds of costs or expenses Before a business is started, an entrepreneur must calculate the amount of money they will need to purchase all items needed to run their business and, most importantly, create a MVP for consumers.
- Teacher Notes Ongoing costs reflect expenses you have on a regular basis Ongoing costs can be researched, but most students will not know what these figures will be.
- Teacher Notes A start up will have different kinds of expenses than a small business. Please have students think about these differences as they relate to their own business idea.
- Teacher Notes
- Teacher Notes Income statements are fundamental in the process of understanding costs to any entrepreneur.
- Teacher Notes Income statements are fundamental in the process of understanding costs to any entrepreneur.
- Teacher’s Notes - Financial Education’s Income Statement Tutorial! - Reading an Income Statement!: https://youtu.be/HRhMnr8dmWY Use this video to introduce students to interpreting an Income Statement
- Teacher Notes - Canvas LMS Deliverable: Income Statement 1 Time estimate: 20 minutes
- Teacher Notes - Canvas LMS Deliverable: Income Statement 1 Time estimate: 20 minutes
- Teacher Notes - OPTIONAL activity Canvas LMS Deliverable: Income Statement 2 Time estimate: 30 minutes Note - Formulas and formatting in this exercise are refreshers from previous deliverables. Encourage students to be resourceful and utilize prior work for troubleshooting.
- Teacher’s Notes - The Finance Storyteller’s Cash Flow Statement explained: https://youtu.be/mZBjsIYrLvM The statement of cash flows is very important to investors because it shows how much actual cash a company has generated
- Teacher’s Notes: The statement of cash flows is very important to investors because it shows how much actual cash a company has generated.
- Teacher Notes The concept of pricing for profit and the process to get to the profit point is your objective.
- Teacher Notes - Canvas LMS Deliverable: Markup Time estimate: 30 minutes Note - The instructor should model appropriate formulas to use in this spreadsheet for beginners. See the “TEACHER NOTES - KEY” version. Optional - Allow students to collaborate with elbow partners if spreadsheets and formulas are new. Each students should have their own version for future reference.
- Teacher Notes - Canvas LMS Deliverable: Markup Time estimate: 30 minutes Note - The instructor should model appropriate formulas to use in this spreadsheet for beginners. See the “TEACHER NOTES - KEY” version. Optional - Allow students to collaborate with elbow partners if spreadsheets and formulas are new. Each students should have their own version for future reference.
- Teacher Notes These videos provide additional information on Breakeven Analysis and ROI for your students.
- Teacher Notes The five Cs are common characteristics possessed by entrepreneurs who need funding by others These characteristics make up a checklist for potential investors, banks, family and friends.
- Teacher Notes This video will provide a good explanation for the 5 C’s of credit. Goalry Mall’s Your A+ Guide to the Five C’s of Credit: https://youtu.be/RdxgiywA73A These characteristics make up a checklist for potential investors, banks, family and friends.
- Teacher’s Notes - Become familiar with the six bars on the graph. Talk about each one as a way to gain appropriate funding. Deliverable: Funding Sources will offer more insight about funding for your students. Graphic Source: https://www.fundable.com/learn/resources/guides/startup/funding-your-startup (2014)
- Teacher’s Notes - Bootstrapping is commonly used for startup businesses to reduce startup costs related to interest on debt and related fees
- Teacher Notes - This video will provide a good explanation of bootstrapping. YEC’s What Is Bootstrapping: https://youtu.be/z47rKs8nXr8 These characteristics make up a checklist for potential investors, banks, family and friends.
- Teacher Notes - Canvas LMS Deliverable: Funding Sources Time estimate: 15 minutes