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This article is as relevant today as it was when published by Today Tonight, AFR and SMH a year ago.
While many children stay at home well into their 20s, an alarming number are also looking to their parents for financial support to start a business, simply because they can’t find a job.
Leading business consultant Shannon Daniels said while the Federal Government talked about support for tech start-ups, it was actually mums and dads who were providing loans and rent-free housing to help their children start businesses. “Millenials are chasing flexibility at work and would prefer to start a business if they can’t find work to suit their lifestyle,” said Mr Daniels. “In some cases we’re talking about loans of $100,000 which is eating into retirement nest eggs and putting parents at big financial risk,” he said.
“There’s a real shift in employment with the jobless reinventing themselves as business owners either with the financial backing of parents or for older workers their partner is their financial support.”
“This is highlighted by figures from the Australia Bureau of Statistics showing in 2015 a massive increase in businesses having no employees and turning over less than $50,000 a year – a decade ago the bulk of businesses were in the $50,000 to $200,000 a year category.” “According to ASIC there were 242,620 new company registrations nationally last year compared with 131,776 ten years prior. An increase of 84%.” “In WA there were 20,307 new registrations in 2015 compared with 10,420 in 2005. An increase of 95%, that’s 11% above the national figure.” “People go into business knowing how to do a particular job well but they’re clueless how to actually run a business which puts them in danger of financial ruin.” “As many as 60 percent of businesses close their doors within four years according to the ABS.” “Entrepreneurs understand the need to learn about business which has led to a seminar cult that’s not a perfect fit for everyone.” “This addictive thirst for knowledge has people on the merry go round of business seminars but instead of implementing the strategies they’ve learned they’ve moved on to the next seminar.”
As a Perth based Business Consultant and Mentor, Shannon Daniels is best known for helping business owners to create a lifestyle of choice where they can make memories with those that they love. You can reach Shannon through the Emanation website www.emanation.com.au
Answer:
Both operating expenses and cost of goods sold (COGS) are expenditures that are incurred by running a business business. However, they measure different ways in which resources are spent. Operating expenses are expenses that are not directly tied to the production of goods or services. Examples of operating expenses include: rent, utilities, office supplies, marketing, payroll, and insurance costs. A business must keep operating expenses under control without adversely affecting the businesses ability to generate revenue. Cost of goods sold is the direct costs tied to the delivery of goods and services. COGS represents the business expenses that are directly incurred because a transaction has taken place. Examples of COGS include:
When an profit and loss statement is generated, cost of goods sold and operating expenses are shown as separate line items subtracted from total revenue. If you want to know if an expense falls under COGS, ask; "Would this expense have been an expense even if no sales were generated?" Lets examine the impact of increasing your prices.
You may find the benefits of a price increase far outweigh the risks of losing customers. Lets start with a break even example: Sales of $ 1,000,000 (-) COGS $ 650,000 = Gross Margin of $ 350,000 Fixed expenses of $ 200,000 + Variable expenses $ 150,000 = Total expenses of $ 350,000 Therefore Net Profit /Loss = $ 0 Using the same example we now increase prices by 10%: Sales of $ 1,100,000 (-) COGS $ 650,000 = Gross Margin of $ 450,000 Fixed expenses of $ 200,000 + Variable expenses $ 150,000 = Total expenses of $ 350,000 Therefore Net Profit = $ 100,000 But how much business can we afford to lose before we are back at break even? Can you believe that a 10% price increase means you can do a third less sales and still be in the same place. Take a look at the calculation below. Sales of $ 733,333 (-) COGS $ 433,333 = Gross Margin of $ 300,000 Fixed expenses of $ 200,000 + Variable expenses $ 300,000 = Total expenses of $ 500,000 Therefore Net Profit /Loss = $ 0 In summary; if you increase your prices by 10% you can afford to lose up top 33% of your sales before you go backwards. Need help with your pricing strategy? Make sure you talk to the business growth specialists at Emanation We all love a discount and we tend to follow the pack and offer discounts to attract new customers but what is this really costing you.  Lets start with a break even example: Sales of $ 1,000,000 (-) COGS $ 650k = Gross Margin of $250k Fixed expenses of $ 200k + Variable expenses $ 150k = Total expenses of $ 350k Therefore Net Profit /Loss = $ 0 Using the same example we now lower prices by 10%: Sales of $900k (-) COGS $ 650k = Gross Margin of $250k Fixed expenses of $ 200k + Variable expenses $ 150k = Total expenses of $ 350k Therefore Net Loss = ($ 100k) On the surface this makes sense, a 10% discount means a 10% hit to the bottom line. But just what are the additional sales needed for us to recover back to the break even point. It's more than you think! Sales of $ 1,800,000 (-) COGS $ 1,300,000 = Gross Margin of $500k
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authorsShannon Daniels
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