Ignite

• Competitive Analysis

• SWOT

• How is your business

canvas coming along?

Homework Review

Ignite course agenda

• Week 1: Goals & Business Foundations

• Week 2: Expanding Value

• Week 3: Exploring the industry

• Week 4: Market Strategy/Marketing

• Week 5: Situation Analysis & Managing Operations

• Week 6: Cost Structures & Revenue Streams &

Business Entities

• Week 7: Review – putting it all together

• Week 8: Final Presentation

What are costs?• Is it just money?

• What about time & opportunity?

Business costs may include cash, materials, time, risk,

opportunities, resources (which can include people)

Cost Structures

• What are the most important costs inherent to our

business model?

Types of Costs

• Variable Costs

• Fixed Costs

• Direct costs to a project

• Economies of Scale

• Economies of Scope

Fixed Cost vs. Variable Cost Game

WHAT IS PROFIT?

(Not meant to be a philosophical question…)

Profit: Gross vs Net

• Profit = Net Income

– Income after expenses

• Revenues = Gross Income

– Income before expenses

Three-Year Forecast

Estimate: Quantity Sold

Products/Services Year 1 Year 2 Year 3 Total Yr 1-3

Paintings 5 8 15 28

Tickets 500 1000 1500 3000

Step 1: How many units will you sell?

Three-Year Forecast

Estimate: Revenue

Products/

Services Price Year 1 Year 2 Year 3

Total Yr

1-3

Paintings $1,500 $7,500 $12,000 $22,500 $42,000

Tickets $25 $12,500 $25,000 $37,500 $75,000

Total Revenue $20,000 $37,000 $60,000 $117,000

(5 pieces sold x $1,500)

Step 2: How much revenue will that generate?

Three-Year Forecast

Estimate: Fixed Costs

Operating

Expenses Assumptions Year 1 Year 2 Year 3

Total

Yr 1-3

Website

Hosting $10 / month $120 $120 $120 $360

Graphic

Designer estimated $500 $1,000 $1,200 $2,700

Subtotal $620 $1,120 $1,320 $3,060

Cost Overrun 20% $124 $224 $264 $5,760

Total Costs $744 $1,344 $1,584 $8,820

Step 3: What are your one-time (fixed) costs?

Three-Year Forecast

Estimate: Per-Unit Costs – Paintings

Materials

Cost Per

Unit Year 1 Year 2 Year 3

Total

Yr 1-3

Canvas $100 $500 $800 $1,500 $2,800

Paint $40 $200 $320 $600 $1,120

Total $700 $1,120 $2,100 $3,920

(5 pieces sold x $100 = $500)

Step 4: What are your variable (per-unit) costs?

Three-Year Forecast

Estimate: Net Income / Loss

Year 1 Year 2 Year 3

Total

Yr 1-3

Total Revenue $20,000 $37,000 $60,000 $117,000

Total Costs $1,444 $2,464 $3,684 $7,592

Net Profit (The

Bottom Line) $18,556 $34,536 $56,316 $109,408

Step 5: Add it all up

Breakeven Point

Cost Structure

Cost Structure – Key Resources

Key Resources

Cost Structures (cont.)

• Which Key Resources are most expensive?

Cost Structure – Key Activities

Key activities

More Cost Structures

• Which Key Activities are most expensive?

What are ways to reduce cost?

Break

Revenue Streams

Revenue Streams

What is Revenue?

Money that is made by or paid to a business or an

organization

Revenue Streams

For what value are our customers willing to pay?

Revenue Model For what do they currently pay?

Revenue Model How are they currently paying?

Revenue Model How would they prefer to pay?

Revenue Model

How much does each revenue stream contribute to overall

revenue?

What sources of revenue might your

artistic work provide?

Think about revenue over costs. Does that leave you with a

profit? Or at least at a breakeven point?

Wage and Employment Data (May 2016)

Wage and Employment Data (Georgia)

Get More Data from BLS

Bureau of Labor

Statistics –

Occupational

Employment Statistics

https://www.bls.gov

/oes/tables.htm

Today’s Artists

• Portfolio artist vs. Superstar Artists

• Multiple Revenue Streams => Cash Flow

Funding Strategies

FUNDS

Earned Revenue Donations Grants

Investors (Friends, Family...) Venture Capital

Other?

Determining pricing – conclusion

Your pricing is based on a number of factors. Don’t forget to

figure in your costs.

What are other artists charging? Are they earning money?

Consider: your level of experience, time it takes to create,

cost of materials, market rates, and your value proposition

which may include “invisible work.”

Stretch Break

Disclaimer

• The following slides are not

meant to provide legal or

financial advice. They are for

information purposes only.

• To help you make the right

decision for you, please

contact an accountant or

attorney.

Forming a Business: Options

• Sole Proprietorship

• Limited Liability Company (LLC)

• S-Corporation

• C-Corporation

• Nonprofit Corporation

Sole Proprietorship

• You are the company

• No incorporation necessary,

no separate filing

– You will still have to comply

with State & Local laws and

ordinances on the books

• You have full liability

Limited Liability Company

• Limited Liability

• Tax filing is part of your

personal tax return

• Less paperwork & scrutiny

compared to other forms

• Very flexible: can have

multiple owners (partnership)

• Can be difficult to transfer

ownership

S-Corporation

• Limited Liability

• Losses are deducted on tax returns

• May carry tax advantages above the LLC

• More paperwork is involved than an LLC

C-Corporation

• Unlimited number of shareholders

• Attractive for venture capitalists

• May retain and accumulate earnings from year to year

• Carries greatest burden of paperwork and scrutiny

• Faces double taxation (income & dividends)

Nonprofit Corporation– In a for-profit, profits are distributed to owners/shareholders

(Return on Investment = Money)

– In a nonprofit, profits are retained to be invested back into

mission (Return on Investment = Mission)

– “No part of the net earnings of the Corporation shall inure to the

benefit of, or be distributable to, its directors, officers, or other

private persons, except … to pay reasonable compensation for

services rendered …”

Nonprofit Advantages

• Tax Exempt

• Donations to 501(c)(3)

organizations are tax

deductible

• Eligibility for grants

• Formal structure means

organization exists beyond its

founders

• Limited liability

Nonprofit Disadvantages

• High cost of

incorporation (fees)

• Greater paperwork

burden (tax returns,

record keeping)

• Shared control: Board

of Directors

• Public Scrutiny

through open tax

filings

Alternatives

• L3C: Low Profit LLC

– Social enterprise with a social benefit, rather than maximize

income (mission-driven)

– Available in: IL, KS, LA, ME, MI, ND, RI, UT, VT, WY

– Foundations can invest in these as a Program Related

Investment

• Benefit Corporation

– For-profit corporation with a triple bottom line: society,

environment, profit

– Available in 28 states

Fiscal Sponsorship

• Existing for-profit organization

or single proprietor may raise

tax-deductible contributions

through an established

501(c)(3) nonprofit

organization.

• Good alternative if forming a

new nonprofit is not feasible.

• Typically, project-based

Homework!

• Fill in Cost Structures &

Revenue Streams

(homework page questions)

• What business entity will

you pursue?

• Identify risks & solutions for

managing them

• Create a budget