Theory: How do you monetize your business potential? Practice: How do you conduct a costing analysis for social enterprises? http://www.socialentrepreneurship.ca/entr4800/

1. ENTR 4800: Social Entrepreneurship
Class 5 (Part 1): Conducting a Costing
Analysis for Social Enterprise
Monday, October 18, 2010
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Instructors:
Norm Tasevski (norm@socialentrepreneurship.ca)
Karim Harji (karim@socialentrepreneurship.ca)

2. © Norm Tasevski & Karim Harji

3. © Norm Tasevski & Karim Harji
Agenda
• SoCap 2010
• What did we learn – Last Week?
• Conducting a costing analysis for your social
venture
– Constructing the financial model
– Scenario analysis (break-even, best-worst)
• After the break…Part 2 (Financing Considerations –
Separate Slide Deck)
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4. © Norm Tasevski & Karim Harji
Last Week – What did we learn?
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A caveat…
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• We will construct a real-world costing analysis
using…

6. Why do a costing analysis?
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3 Reasons
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Strategy Setting!
Go No-Go Decision!
Making Investors Happy :)!

8. How do you do a costing analysis for
for social enterprise?
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9. Remember this?...
Step 1: Identify Cost Drivers and Revenue Sources for your
Business Model!
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-???!
-???!

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…And this?
Step 2: Calculate your margin!
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-???!
-???!

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Costing Analysis
Step 2a: Calculate your margin
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• Use Excel (not financial analysis software)
– Why?
• List your assumptions (in terms of cost drivers and revenue
streams)
– Be comprehensive!
– List what data you know (in “white” cells), and what data you don’t know
(in “blue” cells)
• Calculate your costs
– Use the “here’s how it works…” method
• Calculate your revenues
– Again, use “here’s how it works…”
• Determine your margin

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Break-Even Analysis
– “Unit Sale” Method:
• Breakeven Sales = Total Fixed Costs / Gross Profit per Unit Sale
(Note: Gross profit per unit sale = price – per unit variable costs)
– “Percentage of Sales” Method:
• Breakeven Sales = Total Fixed Costs / Gross Profit Percentage
(Note: Gross profit percentage = 100% - total variable costs as % of sales)
Best-Worst Scenario Analysis
– “What if…” Analysis: Compare your “perfect scenario” (i.e. your baseline)
to various real-world scenarios. For example:
• What if… sales volume is 75% of what we projected? 90%? 110% 125% What
would happen to our profit margin?
• What if… the # expected customers was 75%/90%/110%/125% what we
projected? What would happen to our profit margin?
• What if… there is a change to a cost driver (e.g. transportation costs double, or
a new cost driver is added)? What would happen to profits?
• What if… there is a change to a revenue stream (e.g. an expected investor
backs out, or grant funding is smaller than projected)? What happens to profits?
Costing Analysis
Step 2b: Conduct Sensitivity Analyses

13. © Norm Tasevski & Karim Harji
Exercise…
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14. What Next?
Step 3: Turn “blue” cells into “white” cells (i.e. Research!!)!
-???!
-???!
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16. Break
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17. © Norm Tasevski & Karim Harji
Now…
…On to Part 2 – Financing Considerations for
Social Enterprise
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