Price it right workshop

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Basics of Costing for a startup company.

Transcript of Price it right workshop

  • 1. Calculate how muchyour product/service will cost you?~ by Ratnesh A DesaiFor Jai Hind E-Cell

2. Introduction...My Company SABKAVIKASIt stands for Slums And Backward Area VillagesKnowledge AssociationWhat it does? It provides training & consultancy on: English Language Memory & Study Techniques Entrepreneurship Health & Hygiene Safety and Security Mind, Meditation & Leadership 3. Introduction (contd)...Type of Venture Social EntrepreneurshipTarget Audience Anyone deprived of knowledgeUSP Cost Plus Hundred ModelMinimum Fee One Hundred/PersonMedian Fee Six Hundred and Fifty/PersonMaximum Fee One Thousand/PersonOur Catchphrase Kindly Experience and DonateCurrent Project Make Indians to Make in India 4. Agenda for Workshop...Why is Costing Important?Measuring ValueROI Return of InvestmentLife Cycle CostsFixed Costs & Variable CostsComputation of CostsBreak-even Point and Viability Test 5. Why Is Costing So Important?TighterControlsHigherProfitMarginQuickStartup ProcessStandardizationCostSavingsImprovedReportingMore Flexibility&Focus on CoreHelps make better decisions. Provides key information for planning & controlling.Helps determine costs & prices for goods or services.Helps reduce & manage costs.Helps measure & improve performance. 6. Why Is Costing So Important?CashFlowBalanceSheetFinancialStatementsProfit& LossA/cIt helps us prepare the three principal financialstatements required from all firms. These are:Balance SheetIncome Statement or Profit & Loss Account (P&L A/c)Statement of Cash Flow 7. BalanceSheetBalance Sheet as on 31st March 2013ABC CompanyLiabilities AssetsOwners EquityCapital5,00,000Balance from P&L A/c 6,64,800(retained earnings/Net Profit)Creditors 2,50,000Loans5,00,000Interests on Loans 50,000Taxes 5,200Land/Building10,00,000Machineries/Equipments6,50,000Stationaries20,000Goodwill 1,00,000Debtors 20,000Investments 30,000Cash-in-hand/Bank 45,000Stock of Goods 5,000It is a statement of assets and liabilities of a company.Assets are things of value that a company owns.Liabilities are obligations of a company to pay back.Total 18,70,000 Total 18,70,000 8. Profit &LossP&L statement as on 31st March 2013ABC CompanyRevenue ExpensesSales11,80,000Payments Received 10,000Balance(Net Profit) 6,64,800Indirect Income:Sale of Old Assets 1,40,000Dividend on Investments 3,000Interest on loan given 2,200Purchase (Raw Materials)3,30,000Wages/Salaries 5,20,000Rent30,000Advertising 12,000Accounting/Legal 5,000Depreciation 3,000Insurance80,000 Cost of Production10,00,000It is a statement of revenues and expenses of a company.Total Revenues are inflow 20,00,000 or money Total received by a company.20,00,000Expenses are outflow or money spent by a company.P&L shows profit-related inflow & outflow. 9. CashFlowCash Flow statement as on 31st March 2013ABC CompanyStartupMonthMonth1Month2Month3Starting Cash 20,000 28,000 (3,000) 15,000 In Cash Sales New Loans New Investment Payments ReceivedTOTAL IN3,50,0002,50,0005,0004,0006,33,0002,75,000- -7,0003,5003,13,5001,78,00050,0002,000--2,70,0003,77,0001,00,0003,0002,5004,95,000 Out Bill Payments Repay Loans Purchase AssetsTOTAL OUT1,50,00050,0004,20,0006,20,00090,0001,18,0001,00,0003,08,5001,32,0001,27,000--2,59,0001,00,0002,05,00077,0003,82,000 Cash Balance* 13,000 8,000 11,000 13,000* (Starting Cash plus In minus Out) 10. CashFlowUsually inflows and outflows refer to sales revenue andcost of production.But... 11. CashFlowBut... cash flow also includes other inflows that generateany revenue and other outflows that incur any cost. 12. CashFlowProfit Related P&L statementProfit Related Cash flow Non-Profit RelatedCash Flow shows profit-related as well as non-profit-relatedinflow & outflow.A cash flow statement functions in conjunction with boththe profit & loss statement (performance dimension) andthe balance sheet (financial position).The time of cash flows into and out of projects are usedas inputs to measure value and determine rate-of-returnand break-even point. 13. If you can measure it,you can improve it.MeasuringValueBusiness valuation means what a business is worth.There are three fundamental approaches for valuation:1.Asset Approach Net Worth = Total Assets Total Liabilities2.Market Approach value of shares in stock market & assets3.Income Approach discounting future cash flow projections 14. ROI helps estimatethe attractiveness ofan investment opportunity.ROI 15. ROI helps estimatethe attractiveness ofan investment opportunity.ROI 16. Types of Costs...Other CostsFinanceCostsOperatingCostsCapitalGoodsLegalComplianceInitialCostsDevelopmentCosts 17. Initial Costs...Capital Goods Legal ComplianceA high value, durable asset oflife 3 yearComputers(Desktops/Laptops)ProjectorFurnitureWhite BoardSoftwareMachineryEquipmentsToolsBuildingsTrucksAny legal document requiredby law to operate a businessand any tax/duties to be paidas per the lawTrademark (Rs. 4,000)Domain + Hosting (Rs. 3000)DIN (Rs. 1000)Digital Signature (Rs. 6000)Stamp Duty (Rs. 1300)Company Forms (Rs. 2800)Public Notice (Rs.10,000)Company PAN (Rs. 105)Professional Fees (Rs.15,000)Taxes (Rs. 8,000) 18. Operating Costs...Variable Costs Fixed CostsA variable cost changesin relation to variations inan activity.ConveyanceTransportationStationariesProduction SuppliesLabour RateAdvertisingIncome TaxCustom/Excise DutiesA fixed cost does notchange over short term.RentSalariesInsuranceInterest ExpenseDepreciationProperty Tax 19. Development Costs...Upgrading Costs Expansion CostsNew Capital Goodspurchased for existingline of activities in samelocationComputersSoftwareEquipmentsMachineriesToolsNew Capital Goodspurchased for new line ofactivities in same ordifferent locationBuildingsLandVehiclesMachineries etc. 20. Finance Costs...Opportunity Costs Cost of CreditThe difference in return between achosen investment and one that isnecessarily passed up.The opportunity cost of going tocollege is the money you wouldhave earned if you worked instead.On the one hand, you lose fouryears of salary while getting yourdegree; on the other hand, youhope to earn more during yourcareer, thanks to your education,to offset the lost wages.Cost of credit is the amount ofinterest charged apart from theborrowed money one has to return.A higher interest rate meanshigher cost of credit.A lower interest rate means lowercost of credit.If you don't pay off your creditcard balance every month, theinterest is compounded whichmeans you end up paying morethan expected. 21. Other Costs...Contingency Costs Miscellaneous CostsContingent costs might ormight not be incurred atsome point in the future.EmergencyAccidentsAny other cost incurredapart from the main orregular cost of startup,operations and financing. External FacultyCleaners hired 22. Lets Calculate... 23. Lets Calculate... 24. Lets Calculate... 25. Lets Calculate... 26. Lets Calculate... 27. Lets Calculate...Costs 28. Costing all the smart kidsare doing it... 29. Thank You!