1 / 27

Entrepreneurship

Entrepreneurship. Chapter 6 Tracking Fixed and Variable Costs. Variable Costs. Variable costs vary (change) with sales: 1. Cost of goods sold (COGS) – cost of materials, labor 2. Other variable costs – commisions, shipping, handling etc. Fixed Operating Costs.

tory
Download Presentation

Entrepreneurship

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Entrepreneurship Chapter 6 Tracking Fixed and Variable Costs Mariotti: Entrepreneurship

  2. Variable Costs Variable costs vary (change) with sales: 1. Cost of goods sold (COGS) – cost of materials, labor 2. Other variable costs – commisions, shipping, handling etc. Marriotti: Entrepreneurship

  3. Fixed Operating Costs Fixed operating costs must be paid whether or not the business makes any sales. USAIIRD: • Utilities • Salaries • Advertising • Interest • Insurance • Rent • Depreciation (method used to “expense” expensive pieces of equipment) Marriotti: Entrepreneurship

  4. Contribution Margin Marriotti: Entrepreneurship

  5. Average Contribution Margin A business selling a variety of products can use average COGS to determine an average contribution margin. Marriotti: Entrepreneurship

  6. Economics of One Unit Marriotti: Entrepreneurship

  7. Depreciation Makes Records More Accurate • If you buy a computer that will last 4 years, spread the expense out over 4 years. • Subtract 25% of the computer’s cost from gross profit each year, instead of subtracting 100% of the cost from gross profit the first year. Marriotti: Entrepreneurship

  8. Insurance Protects Business • Fire and other natural disasters • Theft • Liability (lawsuits) Buy insurance to protect your business from: Marriotti: Entrepreneurship

  9. Basic Coverage for Small Business Required by most states: • Workers’ Compensation • Disability Insurance • Auto Insurance Premium: monthly payment on insurance policy Deductible: amount of loss you agree to cover Lower deductible = higher premium Marriotti: Entrepreneurship

  10. Lying About Your Product Is Fraud • If a customer can prove that you knew your product/service was dangerous, you can be forced by a court to pay damages. • Companies that sell products/services that can cause harm (airlines, for example) must inform customers of dangers and carry sufficient insurance. Marriotti: Entrepreneurship

  11. Fixed Operating Costs can be Dangerous to a Business • Fixed costs must be paid even when a business has no sales. Bills must be paid! • Keep at least 3 months fixed costs as a cash reserve before opening your business. • Change fixed costs to variable costs wherever possible. Marriotti: Entrepreneurship

  12. Start-Up Investment • One-time expense of starting a business • Brainstorm every cost to avoid surprises • Ask advisors to go over your list • Add 10% for emergencies and costs you overlooked Marriotti: Entrepreneurship

  13. Payback Start-Up Investment ($1,000) Net Profit per month ($400) Tells investors how long it will take business to earn enough profit to cover start-up costs. = 5 months Marriotti: Entrepreneurship

  14. Accounting: Keeping Track of Money Inflows and Outflows Financial statements: • Income statement • Cash flow statement • Balance sheet Keep good daily records of cash inflows and outflows in order to create financial statements that will describe your business’s performance at a glance. Marriotti: Entrepreneurship

  15. 3 Reason to Keep Good Daily Records • Good records show you how to make your business more profitable. • Good records will prove your business is profitable. • Good records prove payments have been made. • Good records prove you have paid required taxes. Marriotti: Entrepreneurship

  16. Receipts and Invoices • Receipt: paper with date, amount of purchase • Invoice (bill): paper with date, amount of payment due on purchase Keep a copy of financial records in location away from business office. Back up all computer records. Marriotti: Entrepreneurship

  17. Open Business Checking Account • Avoid using cash for business: Use checks, get receipts. Keep a paper trail. • Deposit money from sales in checking account right away. Marriotti: Entrepreneurship

  18. “Cash Only” Accounting • Only make entry in accounting journal when you receive money or pay out money. • Each entry on left side of journal must have a matching entry/description on the right side. Marriotti: Entrepreneurship

  19. Journal Left Side Right Side Marriotti: Entrepreneurship

  20. Blank Accounting Journal—Left Side Marriotti: Entrepreneurship

  21. Blank Accounting Journal—Right Side Marriotti: Entrepreneurship

  22. Return on Investment (ROI) • Net Profit/Investment = ROI • To express ROI as a percentage, multiply by 100. ROI X 100 = ROI% • ROI tells you the rate of return on your start-up investment in the business. Marriotti: Entrepreneurship

  23. NFTE Journal Marriotti: Entrepreneurship

  24. NFTE Journal Marriotti: Entrepreneurship

  25. Relationship Between Accounting Journal and Financial Statements Marriotti: Entrepreneurship

  26. Summary Ledger with Income Statement and Balance Sheet Marriotti: Entrepreneurship

  27. 3 Rules for Managing Cash • Collect cash as soon as possible. • Delay paying bills as long as possible without damaging relationships with suppliers. • Always know your cash balance. Use accounting journal to calculate it every day. Marriotti: Entrepreneurship

More Related