Finance & Profitability
You should have:
Last question:
Business
Product Place Model
IS IT PROFITABLE?
Promotion
Price
Key definitions
FOR
SALE
USP
REVENUE
REVENUE
REVENUE = TOTAL AMOUNT OF SALES
Products & Services
Quantities sold x price/unit
Sales pipeline is key
REVENUE
• 5 000 apples sold
• Price : 2 € / unit
Total REVENUE = 10 000 €
TURNOVER
TURNOVER
TURNOVER = total sales made in a certain period.
Quarter / Fiscal year
TURNOVER
• If I sell 10 000 € of apples
every month, my annual
turnover is ?
• Annual TURNOVER
10 000€ x 12 months = 120 000 €
$576 billion
$386 billion
$280 billion
$224 billion
$37 billion
€441 million
EXPENSES
EXPENSES
Costs
Total costs
Raw material Commissions
Variable costs Production costs Delivery…
Salaries Insurance
Fixed costs Rent Utilities…
Quantities
EXPENSES Total EXPENSES
for 5000 apples:
VARIABLE COSTS
5000 x (1+0,1)
• Cost of the apple: 1 € each + 1000
• Cost of sticker on apple: 0,1 € each = 6 500 €
FIXED COSTS
• Cost of sales stand: 1 000 €
PROFIT
PROFIT
PROFIT = REVENUE - EXPENSES
PROFIT
• Total Revenue = 10 000 € • Total Revenue = 0 €
• Total expenses = 6 500 € • Total expenses = 6 500 €
PROFIT = 3 500 € LOSS = - 6 500 €
PROFIT / LOSS
Costs
C o s ts
Variable costs
Fixed costs
Quantities
PROFIT / LOSS
u e
ve n
Costs Re
PROFIT C o s ts
Break Even Point
LOSS
Quantities
CASH FLOW
CASH FLOW
Amount resulting from
• the payments you receive
• the expenses that you pay
CASH FLOW
Customer’s
payment
10 000 €
7 500 €
5 000 €
2 500 €
Buy apples Buy stickers Buy stand
0€
-2 500 €
-5 000 €
April May June July
WORKING CAPITAL
WORKING CAPITAL REQUIREMENT
Working Capital Requirement is the amount of money needed
to finance the gap between:
• disbursements (payments of expenses)
• receipts (payments of revenue)
WORKING CAPITAL
10 000 €
7 500 €
5 000 €
2 500 €
0€
-2 500 €
-5 000 €
- 6500 €
-7 500 €
April May June July
WORKING CAPITAL
13 500 €
9 000 €
4 500 €
0€
-4 500 €
-9 000 €
-13 500 €
-18 000 €
- 17 000 €
April May June July August
WORKING CAPITAL
• Need of 17 k€ of Working Capital
• Get cash: Capital / Investors / Bank
• Negotiate your payement terms
(power of suppliers - customers)
CASH FLOW
REVENUE PROFIT WORKING
CAPITAL
Example
New coworking place
• Small Coworking place
• 20 desks available + 1 office
• Price: 300 € / month or 5 € per hour
• Small bar to sell coffee + sandwiches
• Rent: 2500 € / month
New coworking place
Estimation of revenue
Revenue
• Sales of desk + office / 220 days / 10 h a day 99 k€
• Sales at the bar + take away 70 k€
Total: 169 k€
New coworking place
Estimation of investments
• Furnitures
- 40 chairs + desks, sofa, tables, coffee machine, fridge…
- Estimated cost: 20 300 €
• Marketing costs (website): 2 000 €
• Creation of the company: 1 000 €
• Contingency: 7 000 €
Total Investments: 30 300 €
New coworking place
Estimation of expenses
• Rent: 30 000 €
• Utilities: 7 600 €
• Insurance: 3 600 €
• Maintenance (cleaning…): 8 500 €
• Salaries 1.5 employees: 30 528 €
• Raw materials: 46 000 €
• …/…
Total expenses: 133 028 €
New coworking place
Pro tability - First assessment
• Total revenue: 169 000 €
• Total expenses: 133 028 €
Pro t = 35 972 € / year
• Investment first year: 30 300 €
Pro t Y1 = 5 672 €
fi
fi
fi
New coworking place
Pro tability - the right assessment
Revenue Ramp Up
Occupancy Rate
fi
New coworking place
Pro tability - the right assessment
Cash flow
Monthly cash flow balance
Investments
Break even point
- 85 k€
fi
Profitabillity
• Created in 2003
• Break event point
in Q2 2020
Profitabillity
• Created in 1994
• Break event point
in 2003
WORKSHOPS
Is your project profitable?
Profitability
Estimate your profitability
- Month by month
- Ramp up
- Make assumptions (pessimistic, realistic, optimistic)
Profitability
1. Estimate your revenue
- Nb of unit sold / month x Price per unit
Profitability
2. Estimate your investments (if any)
- Tools
- Furnitures
- Patents
- Offices
- Production plant
- …/…
Profitability
3. Estimate your expenses
- Production costs
- Salaries
- Marketing expenses
- R&D
- Supply chain
- …/…
Profitability
4. Estimate your profit
- Revenue
- Investments
- Expenses
Key investments
• Offices
• Patents
• Production facilities
• Furnitures
• Website creation (if e-commerce)
• PCs, servers, phone…
• …/…
Key costs
• Salaries + taxes • Expert Accounting • Legal
• R&D • Production costs • Maintenance
• Raw materials • Financial costs • …/…
• Rent • Taxes
• Insurance • Marketing costs
• Utilities • Supply Chain
TOOLS
