Finance & Cash Flow
Many owners know what they charge. Fewer know what a single sale actually costs them.
Prices are often set by looking at a competitor or by adding a margin to the cost of materials. The costs left out, such as rent, wastage, returns, payment charges and the owner's own time, are the ones that turn a busy month into a thin one. This session sorts costs into a structure the owner can use, and ends with a unit cost and a break-even figure for their own business.
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A price is only as good as the cost it sits on.
A business can sell steadily and still be underpricing, because the price was set from the cost of materials and a feeling. Rent, electricity, wages, wastage, discounts, delivery, returns and bank or payment-gateway charges do not appear in a quotation, yet all of them have to be paid from what the customer pays.
Cost is also the most controllable part of the account. An owner cannot decide what a customer will pay, but can decide what to spend. Knowing which costs move with sales and which do not tells the owner which decisions are easy to reverse and which are not.
What the session covers
30 topics across 6 areas. Six parts, worked on the owner's own last month.
Fixed and Variable CostsThe most useful split in small-business finance.5
- Fixed costs: stay the same whether you sell little or a lot
- Variable costs: rise and fall with each sale
- Costs that are partly both, such as electricity or a salesperson on salary plus commission
- Why the split matters when sales fall
- Sorting last month's bank statement and bills into the two
The sorting is the exercise. Few owners have ever done it for their own business.
Direct and Indirect CostsWhat can be tied to one product, and what is shared.5
- Direct: materials, packaging, labour on that job
- Indirect: rent, supervision, accounts, marketing
- Fair ways to share indirect costs across products or jobs
- Why a share that is too light makes some products look more profitable than they are
- When to keep it rough and when to be careful
The Cost of One UnitThe number behind every quotation.5
A worked example uses made-up round numbers: an item sells for ₹500, with ₹300 of materials, labour and packing. The ₹200 left is not profit until the month's fixed costs have been paid from it.
- Materials and labour for one unit
- A share of the monthly fixed costs
- Wastage, breakage, returns and free replacements
- Delivery, packing, payment-gateway or card charges
- Discounts you routinely give, and credit you routinely allow
Break-EvenHow much must you sell just to stand still?5
Continuing the made-up example: with ₹60,000 of monthly fixed costs and ₹200 left from each item, 300 items must be sold each month before any profit appears.
- What is left from each sale after variable costs
- Monthly fixed costs divided by that amount, which is the number of units to break even
- Break-even in rupees of sales as well as in units
- What changes when rent rises or the price falls
- How far current sales are above or below it
The Costs That HideWhere underpricing usually comes from.5
- The owner's own time and a reasonable pay for it
- Repairs, replacement of tools and equipment wearing out
- Interest and loan repayments, which are paid from cash even if not “costs” in a quotation
- Time spent chasing payments and fixing errors
- Taxes and compliance costs, and the GST position, which the CA should explain for your case
GST collected from customers is not your income, and how input tax credit treats your purchases depends on your registration. Ask your CA.
Acting on What You FindThree questions for every large cost.5
- Does this cost bring in sales, or protect them?
- What would happen if it were halved?
- Is there a cheaper way to get the same result without losing quality?
- Which cost deserves to go up, because it makes the product better
- Reviewing costs on a calendar, rather than after a bad month
What participants work through
- Last month's costs, sorted by the owner into fixed and variable
- A cost-per-unit sheet for their main product or service
- Their own break-even in units and in rupees
- A list of hidden costs to add to their price check
- Three costs to question and one to protect
What this session is not
- A costing-standards or cost-accountancy course
- A pricing recommendation for any particular business
- Tax or GST advice, which depends on the individual business
- A suggestion to cut costs that protect quality or safety
How the session runs
Two to three hours. A finance practitioner or an owner who has repriced a product explains the structure with the made-up example. Participants then sort their own last month of costs, using a bank statement or ledger, and calculate a unit cost and a break-even. Owners who keep no ledger can use a bank statement and mark estimates as estimates. The session gives general education, not accounting or tax advice, and it recommends no particular software.
What your students leave with
- Every cost of last month sorted into fixed and variable
- The cost of delivering one unit of their main product or service
- A break-even figure: how much must be sold each month before there is any profit
- A list of the costs that are missing from their price
- A clear view of how much the owner's own time and pay are worth in the business
- Three costs to question or reduce, and one to leave alone
Scheduled sessions
Nothing scheduled yet
Sessions are arranged with a college once a date is agreed. Ask us and we will find the right person for it.
A student rather than a college? See what is coming up, or ask your placement team to host this.
You cannot protect a margin you have not measured.
Tell us who your students are and what stage they are at. Sessions are free for participants.