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])


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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Last Week – What did we learn?

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A caveat…

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•  We will construct a real-world costing analysis using…

Why do a costing analysis?

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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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-???!

-???!


…And this? Step 2: Calculate your margin!

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-???!-???!


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


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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


Exercise…

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What Next? Step 3: Turn “blue” cells into “white” cells (i.e. Research!!)!

-???!

-???!

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Break

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Now…

…On to Part 2 – Financing Considerations for Social Enterprise

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