1. Starting and Running a Business: Introduction to the Financials Part I

2. Earning Wealth Salary: Fixed amount per month Wage: Fixed amount per hour Commission: Percentage of every sale made Dividend: a share of the company’s profit Sale of the company

3. Why is It better for an entrepreneur to be paid by salary, dividend, or sale of the company than by wages?

4. 4 Types of Businesses

5. Manufacturer 4 Types of Businesses

6. Manufacturer Creates products with raw materials Sells in bulk to wholesalers 4 Types of Businesses

7. Manufacturer Creates products with raw materials Sells in bulk to wholesalers Wholesaler 4 Types of Businesses

8. Manufacturer Creates products with raw materials Sells in bulk to wholesalers Wholesaler Buys products in bulk from manufacturers Sells in smaller bundles to retailers 4 Types of Businesses

9. Manufacturer Creates products with raw materials Sells in bulk to wholesalers Wholesaler Buys products in bulk from manufacturers Sells in smaller bundles to retailers Retailer 4 Types of Businesses

10. Manufacturer Creates products with raw materials Sells in bulk to wholesalers Wholesaler Buys products in bulk from manufacturers Sells in smaller bundles to retailers Retailer Buys smaller bundles from wholesalers sells single items to consumers 4 Types of Businesses

11. Manufacturer Creates products with raw materials Sells in bulk to wholesalers Wholesaler Buys products in bulk from manufacturers Sells in smaller bundles to retailers Retailer Buys smaller bundles from wholesalers sells single items to consumers Service 4 Types of Businesses

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

13. Manufacturer Sells in bulk to wholesalers 1 Unit = 1,000 t-shirts Wholesaler Sells in smaller bundles to Retailers 1 Unit = 12 t-shirts Retailer sells single items to consumers 1 Unit = 1 t-shirt Service Offers a unique set of skills or expertise at a fee 1 Unit = 4 hours hiking trip 4 Types of Businesses

14. Create a gift favor, considering a specific type of customer: 1.What’s the name of the gift favor? 2.Who’s the target consumer? 3.How much does it cost to produce the gift basket (labor and materials)? 4.Based on your costs, what’s your selling price? The Gift Shop Activity

15. If we were to start this business, what would we need to have? The Gift Shop Activity

16. 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 Costs of Starting and Running a Business

17. 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 Costs of Starting and Running a Business

18. Ex: John’s Gift Basket Shop Business Certificate$100.00 Basket Ingredients$275.00 250 Business Cards$20.00 100 flyers$50.00 Office Supplies$45.00 Start-Up Investment

19. Ex: John’s Gift Basket Shop Business Certificate$100.00 Basket Ingredients $275.00 250 Business Cards$20.00 100 flyers$50.00 Office Supplies$45.00 3 months fixed costs$120.00 Start-Up Investment

20. Ex: John’s Gift Basket Shop Business Certificate$100.00 Basket Ingredients$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 Start-Up Investment

21. In NFTE’s 10 th 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 The 2 Costs of Running a Business Fixed and Variable

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

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

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

25. Cost of Goods Sold for a “Gift Favor” COGS/= Labor Cost/ + Materials/ Gift Basket Unit Unit Costs of Starting and Running a Business (continued)

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

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

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

29. Keystoning is doubling your cost of goods sold (COGS) to set your selling price. Keystone

30. ManufacturerWholesalerRetailerConsumer 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 The Production/Distribution Chain or The Supply Chain

31. Formula: Gross Profit = Selling Price – Var. Cost per unitper unit per unit (COGS/ + other var. costs) per unit Also called “Cost of Sales/unit” Economics of One Unit

32. In order to calculate, we must define our Unit of Sale Economics of One Unit

33. Manufacturer Sells in bulk to wholesalers 1 Unit = 1,000 t-shirts Wholesaler Sells in smaller bundles to Retailers 1 Unit = 12 t-shirts Retailer sells single items to consumers 1 Unit = 1 t-shirt Service Offers a unique set of skills or expertise at a fee 1 Unit = 4 hour hiking trip 4 Types of Businesses Defining the Unit of Sale

34. 1.What is the unit of sale for our favor? 2.What is our Gross Profit per Unit? Formula: Gross Profit = Selling Price – Var. Cost per unitper unit per unit (COGS/ + other var. costs) per unit Economics of One Unit