This is a copy of the Costs and Budgets webinar training session. Some of the materials you might find useful for reference purposes, and the activities referred to in the workbook have been copied below.
Ignore the blonde: clip from ‘a beautiful mind’
Before starting the assessment for the finance part of this unit; it is recommended that you complete these exercises to give you more background and experience in dealing with finances in the workplace. Firstly; to give you an idea of what makes an organisation profitable, please read through the lesson on Learnerzone and complete the quiz:
If you are unfamiliar with this subject you may wish to further research how businesses operate in general, such as:
- Best practice for quoting for work
- Basic business finances
- How to charge enough for work you produce
- How VAT works for trade goods
For more information about managing a personal budget see this article provided by Which? – http://www.which.co.uk/money/money-saving-tips/budgeting/guides/planning-a-budget/how-to-manage-your-budget-successfully
For more information about costs and budgets in a small business see the below resources:
Activity 1) Quoting for work
Before a potential customer places an order with a company, they would normally require a quote for the particular work they want undertaken. This quote will estimate the overall price of a job, taking into account any variable costs such as material and labour, and any fixed costs such as rent and overheads in proportion to the job. A quote should be more than just a price, and a good thorough quote would contain all the relevant information required to complete the job such as:
- Job specifications
- Types and quantities of materials
- Sizes, dimensions or templates
- Operations and costs involved
- Estimated timescales
In this exercise you will need to estimate a quote for a job. You will first need to work out what material and labour costs are involved, then add on any representative fixed costs and then add on your profit margin. There are different ways of working out your profit, such as adding a percentage to all the costs, then charging for labour time, or by doubling all the variable and fixed costs relating to the job.
In the scenario below, choose at least three of the products and tasks and work out what material and labour will be required, plus any other costs then produce a quote with an estimated price.
Scenario: TP Digital
TP Digital Ltd are looking for a range of promotional material in order to rebrand their IT support company in Greater Manchester. They have asked for a new logo that can be scaled up, plus a price and timescale for at least two of the following ideas:
- 4x A-board signs to place outside their premises and new signage across a 16’ x 4’ panel on the front of their premises
- New headers for their Facebook, Twitter and LinkedIn profiles.
- 1000x 16pp A5 booklets advertising their products and services
- Vehicle wrapped print for the back of a small van
- 12 different B2 size posters to be placed around their building.
- 500x creative promotional calendars
Choose two products, plus the new logo design and produce a quote that can be presented to your assessor.
Note: “You never hear of a company going out of business for charging too much”. Remember not to undersell your work, and if you are ever dealing with a trade goods quote, such as for materials or B2B services, it is likely that the price quoted does not include VAT.
Always remember to add the VAT to your figures, and give yourself a reasonable “mark-up” on materials or services that you have sourced. After all, you arranged all the work so you rightfully deserve a service fee; whether it is a fixed sum, or a percentage of the value of goods.
Activity 2) Income and Expenditure
In this exercise you will estimate the yearly income and expenditure of a business. First you will estimate the yearly costs involved in a business then you will work out how many jobs like the above you will need to do to make a profit. After this you can explore what the overall profit potential of your hypothetical business is.
Follow these steps to work out the expenditure:
- Find a commercial property on the internet and workout the cost for the year
- Add 60% to this property to cover other overheads
- Count the number of people in your company, then multiple this by an estimated yearly salary
- Add up any costs for software subscriptions for the year
- Add all these costs together to give an estimated total expenditure
Now follow these steps to work out the potential income
- Let’s assume each member of staff has 200 working days in a year; how many of the scenario jobs that you quote for in activity 1, can be fit into the year for one member of staff?
- Multiply this by the total number of staff; this gives your maximum potential income
- Now divide this total by 2, to give a more realistic projection of the potential income at 50% chargeability
- Take the expenditure total away from both of the above numbers to work out your yearly profit or loss
- Based on this exercise; how can you improve how these projections are made?
You should now be able to see how much profit or loss you can make.
- If you have made a profit, propose a budget using a portion of this to make an improvement to you company, such as new equipment or staff.
- If you have made a loss, propose how you can make an improvement to reduce this loss using a grant budget of £20,000.