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Presented by: Don Thibert B. Comm.. A one year program is $12,000. You earn $12,000/12 months or $1,000/Month. Or $12,000/52 weeks or $230.77/Week.

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Presentation on theme: "Presented by: Don Thibert B. Comm.. A one year program is $12,000. You earn $12,000/12 months or $1,000/Month. Or $12,000/52 weeks or $230.77/Week."— Presentation transcript:

1 Presented by: Don Thibert B. Comm.

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3 A one year program is $12,000. You earn $12,000/12 months or $1,000/Month. Or $12,000/52 weeks or $230.77/Week. Or $230.77/5 days or $46.15/Day.

4  Estimating monthly Revenue  Budgeting  Business Plan  Other examples?

5  Revenue less expenses = Net Income

6 Fixed Expenses:Variable Expenses: RentTextbooks MarketingStudent supplies Payroll Office vs Faculty Utilities

7  What are your conclusions about expenses?

8  Most of our costs are fixed?  What if variable costs are $100 per month per student.  Our run rate (Revenue) is $1,000 from our previous example.  So variable costs are 10% of Revenue per month.  Contribution towards fixed expenses is therefore 90% of monthly Revenue

9  What if fixed expenses are $30,000/Month.  You would need $30,000/90% in Revenue to cover fixed expenses or $33,333.33  Income Statement:  Revenue$33,333.33  Variable Expenses 3,333.33  Contribution$30,000.00  Fixed Expenses$30,000.00  Net Income0 Break Even = $33,333.33 or 33 students/month

10  Income Statement:  Revenue (38 X 1,000)$38,000.00  Variable Expenses 3,800.00  Contribution$34,200.00  Fixed Expenses$30,000.00  Net Income 4,200.00  Once you have passed Break-even every new student has 90% of revenue flow through to Net Income...NICE!!!!  Unfortunately every student under break even has 90% of the missed Revenue flow through to create Net Losses...OUCH!!!

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12  Bad Debt 2.5% or less of Revenue  Attrition of 3.0% or less of monthly student population  Referrals 40% of started students  Employee Turnover should be less than 10%  Graduate Employment 80%  Student Satisfaction of 90%  Schools should strive for a 5% improvement in Profit Year over year.  Schools that achieve a 25% Profit are generally very well run.

13  What is EBITDA?  Earnings before Interest, Taxes, Depreciation and Amortization  Why is EBITDA Important?  What drives earnings multiples

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15  There are multiple principles but I wish to share a select few:  Continuity – keep reporting in the same manner  Conservatism – do not exaggerate  Matching (the most important principle for our sector) – that revenue should match the period they are earned in and expenses that are related to those revenues should be reported in the same period. Trust me – this is not as simple as it seems!

16  Here are a few matching issues I have seen over the last 10 years in our sector:  Recognizing revenue on a cash basis rather than when it is earned  Recognizing 100% of revenue when the regulatory rules say that it is earned  Not matching costs of fees, books, and instructional supplies to when revenue is recognized  Forgetting that practicum supervision costs are higher at the end of a program  Any of these distort your results and ability to manage your company effectively.

17  Types of external assurances:  Audits – positive assurance but not a guarantee against fraud  Reviewed – substantial diligence involved  Notice to Reader – simply compiled  Specialized situations  Audits of OSAP in Ontario (and now we have sources of revenue audits as well)  Review of earnings and PCTIA payments in BC  Costs  You get what you pay for  Huge need to pay attention to what you are actually purchasing

18  The Notes to the F/S are long and tedious, after the numbers, and that is why they get ignored  But they are the explanation of “how everything was interpreted”  They include explanation of the assumptions on capitalization and amortization  And this is where the real criminals hide key issues like overvalued derivatives, non productive assets, or write offs of bad decisions

19  EBITDA is important to:  Bankers  Investors  Purchasers  Therefore it is important to you!  The calculation is:  Net Revenue  Plus Interest Expenses  Plus Taxes  Plus Amortization  Plus Depreciation

20  Financial Statements should be analyzed because it helps you understand your business and keeps you out of trouble  A couple of quick ratios to consider  Current Ratio Current Assets / Current Liabilities (short term liquidity test)  Debt to Net Equity Total Debt / Total Equity (how much debt leverage you have on your business – risk versus reward issue)  Gross Profit Gross Profit / Total Revenue (biggest potential win)

21  Budgets are often avoided because:  We don’t know what will happen in the future  They are a huge amount of work (months to do well)  They have been used by management as weapons  But they are really a solid business process when used correctly:  They are a planning tool, what do we think will happen  They demand that you look at key issues like pricing, growth, and product mix  They provide an opportunity for what if scenarios  They allow for comparisons of “what did happen”

22  Revenue recognition  Direct costs  Marketing costs (more ratios)  Lease commitments  Matching costs to when revenue is earned  Accurate and timely reporting with analysis  Budgeting – get a plan in place (and review results)  Balance the right tools with the right staff to get the job done  Never forget cash

23  B/S – Balance Sheet  CA – Chartered Accountant  CGA- Certified General Accountant  CMA – Certified Management Accountant  EBITDA – Earnings Before Interest Taxes Depreciation & Amortization  I/S – Income Statement  F/S – Financial Statement  GAAS –Generally Accepted Auditing Standards  GAAP – Generally Accepted Accounting Principles  Gross Margin – Gross Profit as a % of Revenue  Gross Profit – Revenue minus Direct Costs  Loss - Bad  Profit – Good  Statement of Cash Flows


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