need a killer business model? these tips will get you going

Business Model Workshop

Confidential

Confidential

Today’s Focus 2

Confidential

Cash is KING, especially for small businesses!

Confidential

Key Questions 3

Why do I need to measure financial performance?

How do I measure performance?

How much volume do I need to break-even?

How much do I need to invest?

3

1

2

4

Confidential

Why Do I Need to Run the Numbers? 4

Passion In An Idea Can Blind You

Confidential

What Numbers Should I Care About? 5

Revenue

Variable Costs

Gross Margin

Fixed Costs

Profit

(-)

(-)

The magic to making money is understanding the relationship between these numbers

Confidential

Revenue 6

Revenue = (Price – Discounts) * Unit

Start-Ups Growing Business Maturing Business

• What is the mark-up to the cost?

• How much are people willing to pay?

• How many units do I need to sell to break-even?

• How do my sales compare against last year?

• What is my market share?

• What are other ways I can make money?

Confidential

Variable Costs 7

Variable Costs = Production Costs + Inventory

Examples • Labor costs • Raw materials • Inventory warehousing costs • Sale commissions Understanding your variable costs is the key to being profitable • Variable costs often dictate price (price is a % markup)

Ways to keep variable costs low to avoid price increases • Favorable payments terms will allow you to get a discount from

suppliers • Standardize your production • Invest in equipment to reduce direct labor and reduce cost variances

Confidential

Fixed Costs 8

Fixed Costs = Various operating expenses How much does it

cost to keep the lights on?

Examples: • Rent and other store expenses • Management and administrative staff • Taxes and licensing costs

Insights on Fixed Costs: • The higher your fixed costs the higher the

sales you need to break-even • Evaluate how scalable your fixed expenses

are. For instance, can you grow sales without growing fixed costs? • Highly scalable: technology companies • Not very scalable: transportation

companies

Confidential

How Should I Measure Performance? 9

Revenue per Unit

Variable Costs per Unit

Gross Margin per Unit

# of Units

(-)

Gross Margin

How many units do you need to sell so that your Gross Margin = Fixed Costs?

This is the break-even point

Confidential

How Much Volume Do I Need to Break-Even? 10 ($

in t

ho

usa

nd

s)

(Units / Month)

5k 10k 15k 15k 20k 30k

Annual Fixed Costs: ~$22.7k

$13k

$25k

$38k

$50k Gross Margin per Unit: $2

Breakeven: 11.35k Units/Month

Confidential

Guesstimate the Unit Economics of Your Business 11

Revenue per Unit

Variable Costs per Unit

# of Units

Restaurant Example

• Price of a Big Mac (less applied discount)

• Big Mac ingredients • Big Mac package • Labor time to

process order and make a Big Mac

• # of Big Macs sold per week

Confidential

How Much Do I Need to Invest? 12

It Takes Money to Make Money!!!

Start-Up Cash Considerations

• Time is money: Operating expenses until break-

even

• Company setup costs (licenses, security deposits)

• Equipment purchases

• Sales and marketing to ramp up sales

Confidential

Cash Flow Curve 13

–

10

20

30

40

50

60

70

80

90

(400)

(300)

(200)

(100)

–

100

200

300

Jan-

16

Feb

-16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-

16

Aug

-16

Sep

-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

Feb

-17

Mar

-17

Apr

-17

May

-17

Jun-

17

Un

its

per

Mo

nth

(000

s)

Cu

m. C

ash

Flo

w (0

00s)

Cum. Cash Flow Units/Month

Total Investment

Confidential

Resources to Measure Performance 14

• Trade Associations

o Identify resources that are customized for your industry

• Accounting software (QuickBooks or Zero)

• Accountants (not only tax preparers)

Thank You

Together Moving Forward | Juntos Adelante

Kenneth Salas ksalas@caminofinancial.com

(510) 734 - 9018