1. Intro to the Financials
Part 2

2. 4 Types of Businesses

3. 4 Types of Businesses Manufacturer Wholesaler Retailer Service
Creates products with raw materials
Sells in bulk to wholesalers
Buys products in bulk from manufacturers
Sells in smaller bundles to
retailers
Buys smaller bundles from wholesalers
Sells single items to consumers
Offers a unique set of skills or expertise at a fee

4. 4 Types of Businesses: Defining the Unit of Sale – A T-shirt Business
Manufacturer
Wholesaler
Retailer
Service
Sells in bulk to wholesalers
1 Unit =
1,000 t-shirts
Sells in smaller bundles to
Retailers
1 Unit =
12 t-shirts
Sells single items to consumers
1 Unit =
1 t-shirt
Offers a unique set of skills or expertise at a fee
1 Unit =
4 hours of babysitting service

5. Costs of Starting and Running a Business
Start-up Investment
The initial amount needed to starting your business
Office Supplies
Your Product
Materials
Equipment
Legal, Incorporation, etc.
3 months cash (operating) reserve

6. 10th Ed. – Start-Up Investment
Ex: Ralph’s Gift Basket Shop
Business Certificate $100.00
Gift Basket Components $275.00
250 Business Cards $20.00
100 flyers $50.00
Office Supplies $45.00
3 months fixed costs $120.00
Total Start-Up Investment $610.00

7. Activity The Gift Basket Shop
Create a gift basket, considering a specific
type of customer:
What’s the name of the sandwich?
Who’s the target consumer?
How much does it cost to produce the sandwich
(labor and materials)?
4. Based on your costs, what’s your selling price?

8. Fixed and Variable costs are defined by how they relate to sales:
The 2 Costs of Running a Business Fixed and Variable
In NFTE’s 10th Edition:
Fixed and Variable costs are defined by how they relate to sales:
Fixed costs:
Variable Costs:

9. Fixed and Variable costs are defined by how they relate to sales:
The 2 Costs of Running a Business Fixed and Variable
In NFTE’s 10th Edition:
Fixed and Variable costs are defined by
how they relate to sales:
Fixed costs: do not fluctuate with sales
Variable Costs: do fluctuate with sales
or production

10. The 2 Costs of Running a Business Fixed and Variable
Variable Costs: costs that fluctuate with sales
Divided into 2 categories: a) or b)

11. The 2 Costs of Running a Business Fixed and Variable
Variable Costs: costs that fluctuate with sales
Divided into 2 categories:
a) Cost of Goods Sold (COGS) or
b) Other variable costs

12. The 2 Costs of Running a Business Fixed and Variable
Variable Costs: costs that fluctuate with sales
Cost of Goods Sold

13. The 2 Costs of Running a Business Fixed and Variable
Variable Costs: costs that fluctuate with sales
Cost of Goods Sold
The cost of producing one additional unit of the product you sell
Ex: If I’m in the watch business and it costs me $5 to purchase 1 watch that I sell, my cost of goods sold (or COGS) for 1 watch is $5.

14. Costs of Starting and Running a Business
Cost of Goods Sold for
a “Gift Basket”

15. Costs of Starting and Running a Business (cont.)
Cost of Goods Sold for
a “Gift Basket”
A Manufacturing Business
COGS/= Labor Cost/ + Materials/
Gift Basket Unit Unit

16. b) Other Variable costs
The 2 Costs of Running a Business Fixed and Variable
Variable Costs: costs that fluctuate with sales
b) Other Variable costs

17. b) Other Variable costs
The 2 Costs of Running a Business Fixed and Variable
Variable Costs: costs that fluctuate with sales
b) Other Variable costs
Commission
Packaging
Shipping

18. Also called “Cost of Sales/unit”
Costs of Starting and Running a Business (cont.)
Variable Costs per unit
for a “Gift Basket”
Variable Cost/= COGS/ + other var. costs/
Gift Basket Unit Unit
Also called “Cost of Sales/unit”

19. COGS/= Labor Cost/ + Materials/
Costs of Starting and Running a Business (cont.)
Cost of Goods Sold for
a Service Business
A Service Business
COGS/= Labor Cost/ + Materials/
Unit Unit Unit

20. A Baby-Sitting Service
Costs of Starting and Running a Business (cont.)
Cost of Goods Sold for
a Service Business
A Baby-Sitting Service
COGS/Per Unit = Labor Cost/ Supplies/
Service Business Unit Unit

21. Costs of Starting and Running a Business (cont.)
Unit of Sale: 4 hours of Babysitting

22. Costs of Starting and Running a Business (cont.)
Unit of Sale: 4 hours of Babysitting
Labor:
Value of time/hour: $10.00
# hours to perform service x
Total value of labor/unit $40.00

23. Costs of Starting and Running a Business (cont.)
Unit of Sale: 4 hours of Babysitting
Supplies:
Snacks $2.00
Arts & Crafts $2.00
Total $4.00

24. Costs of Starting and Running a Business (cont.)
Unit of Sale: hours of Babysitting
Labor: $40.00
+ Supplies: $ 4.00
Total COGS for
Babysitting Service $44.00

25. b) Other Variable costs
The 2 Costs of Running a Business Fixed and Variable
Variable Costs: costs that fluctuate with sales
b) Other Variable costs
Commission
Packaging
Shipping

26. Costs of Starting and Running a Business (cont.)
Unit of Sale: hours of Babysitting
Other Variable Costs:
+ Gas: $ 3.00
Other Variable Costs for
Babysitting Service $ 3.00

27. Also called “Cost of Sales/unit”
Costs of Starting and Running a Business (cont.)
Variable Costs per unit for a
Service Business
Variable Cost/= COGS/ + other var. costs/
Unit Unit Unit
Also called “Cost of Sales/unit”

28. Costs of Starting and Running a Business (cont.)
Unit of Sale: hours of Babysitting
COGS: $44.00
+ Other V.C: $ 3.00
Variable Cost/unit
For Babysitting Service: $47.00

29. Keystoning

30. Keystoning
Keystoning is doubling your variable cost per unit to set your selling price.

31. The Production/Distribution Chain or The Supply Chain
Var. Cost: $1.00
Sell. Price: $2.00
Var Cost: $2.00
Sell. Price: $4.00
Var. Cost: $4.00
Sell. Price: $8.00
Prch. Pr.: $8.00
Manufacturer
Wholesaler
Retailer
Consumer

32. The Production/Distribution Chain or The Supply Chain
Personal
Shopper
Broker
Broker
COGS: $1.00
Sell. Price: $2.00
COGS: $2.00
Sell. Price: $4.00
COGS: $4.00
Sell. Price: $8.00
Prch. Pr.: $8.00
Manufacturer
Wholesaler
Retailer
Consumer or
Distributor

33. Economics of 1 Unit
Formula:

34. Economics of 1 Unit Formula: Gross Profit = Selling Price – Var. Cost
per unit per unit per unit
(COGS/ other var. costs)
per unit per unit

35. Calculating Gross Profit: Example
If we sold 90 gift baskets in the month of December, what was our total gross profit for the month?

36. Calculating Total Gross Profit
Formula:
Total Sales
– Total COGS
– Total “Other Variable Costs”
= Total Gross Profit

37. Calculating Total Gross Profit
Formula:
Total Sales
– Total COGS
– Total “Other Variable Costs
= Total Gross Profit
Can we use ALL this money towards travel or retirement?

38. Fixed Costs The 2 Costs of Running a Business Fixed and Variable
costs that stay the same whether or not a sale is made
Ex: Rent

39. The 2 Costs of Running a Business Fixed and Variable
Fixed Costs U S A I R D O

40. Fixed Costs Utilities Salaries Advertising Insurance Interest Rent
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent
Depreciation
Other

41. Fixed Costs Utilities –
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities –

42. Utilities – a commodity of service.
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities – a commodity of service.
Ex: water, electricity, gas, etc.

43. Fixed Costs Utilities Salaries –
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries –

44. Salaries – regular payment for the
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries – regular payment for the
services of an employee.

45. Fixed Costs Utilities Salaries Advertising –
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising –

46. Advertising – ways used to make the
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising – ways used to make the
product and/or business
known to the public.
Ex: newspaper, television, radio, internet, billboards, brochures, etc.

47. Fixed Costs Utilities Salaries Advertising Insurance –
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance –

48. Insurance – protects bus. from things that
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance – protects bus. from things that
could go wrong
Ex: fire, theft, flood, etc.
Premiums: Monthly fees for the use of
insurance.

49. Fixed Costs Utilities Salaries Advertising Insurance Interest –
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest –

50. Interest – monthly fee paid for borrowing
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest – monthly fee paid for borrowing
money.

51. Fixed Costs Utilities Salaries Advertising Insurance Interest Rent –
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent –

52. Rent – fixed monthly payments in return for
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent – fixed monthly payments in return for
the right to occupy property

53. Fixed Costs Utilities Salaries Advertising Insurance Interest Rent
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent
Depreciation –

54. Depreciation – the loss in value, or aging, of
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent
Depreciation – the loss in value, or aging, of
an asset over time.

55. Fixed Costs Utilities Salaries Advertising Insurance Interest Rent
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent
Depreciation
Other –

56. Other – a “catch-all” for items that don’t fit in
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent
Depreciation
Other – a “catch-all” for items that don’t fit in
other categories

57. Fixed Costs Utilities Salaries Advertising Insurance Interest Rent –
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent –

58. Rent – fixed monthly payments in return for
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent – fixed monthly payments in return for
the right to occupy property

59. Fixed Costs Utilities Salaries Advertising Insurance Interest Rent
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent
Depreciation –

60. Depreciation – the loss in value, or aging, of
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent
Depreciation – the loss in value, or aging, of
an asset over time.

61. Fixed Costs Utilities Salaries Advertising Insurance Interest Rent
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent
Depreciation
Other –

62. Other – a “catch-all” for items that don’t fit in
The 2 Costs of Running a Business Fixed and Variable
Fixed Costs
Utilities
Salaries
Advertising
Insurance
Interest
Rent
Depreciation
Other – a “catch-all” for items that don’t fit in
other categories

63. The Income Statement: The Scorecard of Business
Total Sales
Total COGS
Total Other Variable Costs
= Total Gross Profit
- Fixed Costs (USAIIRDO)
= Profit before taxes
- Taxes (25%)
= Net Profit or (Loss)

64. The Income Statement: The Scorecard of Business
Also called The Profit and Loss Statement:
Shows the revenues and expenses of a business and the resulting profit or loss over a specific period of time
Income statements that forecast future performance are called Pro Forma or Projected Income Statements

65. The Power of The Income Statement
Are you succeeding at meeting customer needs?
Are you succeeding at creating value?
Are you keeping good records?

66. The Income Statement: The Scorecard of Business
How much Net Profit would we have generated for the month of December if we had $250 in fixed costs?
Total Sales
Total COGS
Total Other Variable Costs
= Total Gross Profit
- Fixed Costs (USAIIRDO)
= Profit before taxes
- Taxes (25%)
= Net Profit or (Loss)

67. Calculating Return on Investment (ROI)
Gains on an investment usually expressed as a percentage of the original investment

68. Calculating Return on Investment (ROI)
Elements of Investment
Risk: The degree of chance that you could lose money on an investment
Time: How long it takes to obtain a return on the investment
Liquidity: How easy or difficult it is to ontain

69. Calculating Return on Investment
Formula:
net profit
investment
ROI =
X 100

70. Calculating Return on Investment
If we invested $2,000 to start this business, what is our return on investment by the end of December?
Formula:
net profit
investment
ROI =
X 100

71. Calculating Return on Sales (ROS)
Shows net profit as a percentage of total sales.
Formula:
net profit
Total Sales
ROS =
X 100

72. Calculating Return on Sales
By the end of December, what is our return on sales?
Formula:
net profit
Total Sales
ROS =
X 100

77. If We Say:

78. If We Say:
THEN we can say:

79. for every $1.00 we have in sales, we make $.18 in net profit
If We Say:
AND, we can say:
for every $1.00 we have in sales, we make $.18 in net profit

80. Business is Basketball
Bill Dockerty
Providence City Championship
Home
Away 62 60
Quarter 4
Time
1:52
Possession
Time outs 1
Player
Pts
Fouls 12 46 14 2 22 16 11 13 6 3 8 10

81. $ 440.00 Mo. of Aug. Mo. of Sept. $2,280.00 = 100% - 960.00
$2, = 100%
$1,320.00
Fixed Costs $ $ $
$ = 29%

82. For every $1.00, we have in sales, made $.29 in net profit $ 440.00
Mo. of Aug.
Mo. of Sept.
$2, = 100%
$1,320.00
Fixed Costs $ $ $
$ = 29%
For every $1.00,
we have in sales,
made $.29
in net profit

83. Calculating Break Even Units
Calculates how many units must be sold to cover fixed costs.
Monthly Fixed Costs
Gross Profit per Unit
Formula:
Break Even =
Break Even Point = ______ Gift Baskets

84. Calculating Break Even Units
What are our Break Even Units?
Monthly Fixed Costs
Gross Profit per Unit
Formula:
Break Even =
Break Even Point = ______ Gift Baskets per month
Here, we neither make profit nor lose money