ENTR4800 Class 5 (Part 1): Conducting a Costing Analysis for Social Enterprise

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Theory: How do you monetize your business potential?
Practice: How do you conduct a costing analysis for social enterprises?

http://www.socialentrepreneurship.ca/entr4800/

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ENTR4800 Class 5 (Part 1): Conducting a Costing Analysis for Social Enterprise

  1. 1. ENTR 4800: Social Entrepreneurship Class 5 (Part 1): Conducting a Costing Analysis for Social Enterprise Monday, October 18, 2010 1 Instructors: Norm Tasevski (norm@socialentrepreneurship.ca) Karim Harji (karim@socialentrepreneurship.ca)
  2. 2. © Norm Tasevski & Karim Harji
  3. 3. © 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) 3
  4. 4. © Norm Tasevski & Karim Harji Last Week – What did we learn? 4
  5. 5. © Norm Tasevski & Karim Harji A caveat… 5 •  We will construct a real-world costing analysis using…
  6. 6. Why do a costing analysis? 6
  7. 7. © Norm Tasevski & Karim Harji 3 Reasons 7 Strategy Setting! Go No-Go Decision! Making Investors Happy :)!
  8. 8. How do you do a costing analysis for for social enterprise? 8
  9. 9. Remember this?... Step 1: Identify Cost Drivers and Revenue Sources for your Business Model! 9 -???! -???!
  10. 10. © Norm Tasevski & Karim Harji …And this? Step 2: Calculate your margin! 10 -???! -???!
  11. 11. © Norm Tasevski & Karim Harji Costing Analysis Step 2a: Calculate your margin 11 •  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
  12. 12. © Norm Tasevski & Karim Harji 12 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
  13. 13. © Norm Tasevski & Karim Harji Exercise… 13
  14. 14. What Next? Step 3: Turn “blue” cells into “white” cells (i.e. Research!!)! -???! -???! 14
  15. 15. © Norm Tasevski & Karim Harji 15
  16. 16. Break 16
  17. 17. © Norm Tasevski & Karim Harji Now… …On to Part 2 – Financing Considerations for Social Enterprise 17

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