finance : how to estimate your costs? by impulse
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Costs assumptions
Catherine Blondiau Rodolphe d’Udekem d’Acoz
Business and Finance Advisors @ IMPULSE.Brussels
• Sales
• Costs of goods/services sold
• (Other) Operating Costs
• = Cost of Sales
• Variable costs directly linked to the goods / services sold and highly or totally proportional to the sales
• Can be close to zero for some kind of activities
• Much easier to predict than the volume of sales itself (should logically be based on tangible elements)
COGS : Cost of Goods / Services sold
• Two main categories:
a) goods purchased and/or manufactured NB: attention point: means a potential inventory and an additional financial need b) other costs, linked to sales, with no impact on inventory NB: eg. Transport, paiment or packaging costs
COGS : Cost of Goods / Services sold
• Deducted from the sales, it will give the gross margin or gross revenues NB: often an important parameter, notably to monitor the evolution of profitability & to make comparison with company in similar business
• In some cases, there is a grey zone whether some costs « should » be integrated in the COGS or the general expenses, with some freedom to choose
COGS : Cost of Goods / Services sold
• Do not forget that the cost per unit sold can
change following different parameters such as inflation or the evolution in the volume of sales (bargaining power with suppliers)
COGS : Cost of Goods / Services sold
• A margin is a relative concept ! Be aware that it’s all about points of view. Otherwise, it could lead to misinterpretation.
for example, for the gross margin, it could be expressed in terms of:
- an amount in currency - a percentage of the sales (without VAT), which is the
most commonly used approach - but also sometimes as a percentage of the costs
(quite unusual for gross margin but stil …)
Margin : relative notion
Cost of goods / services sold: 100 € Sales: 150 € - Margin expressed in €: 50 € - Margin expressed as % of costs: 50% - Margin expressed as % of sales: 30%
Margin : relative notion
• Sales
• Costs of goods/services sold
• (Other) Operating Costs
• General Expenses • Or « fixed » costs • Or selling, general & administrative exp. (SGA)
• Rent & Maintenance expenses • Utilities, Telephone, Internet & Licences, etc • Insurance & Bank fees (not the financial interests !) • Third parties / subcontracters, notably : Accountants,
Lawyer fees, External sales, etc
General Expenses or « Fixed » costs
• Marketing & Communication expenses NB: not to be underestimated ! • Travel & representation expenses • HR costs other than salary and related costs • Taxes (not the taxes on profit) • … Unexpected expenses !
General Expenses or « Fixed » costs
• R&D (if not integrated in the investments) • Use of tangible assets (if not integrated in investments)
• Expenses versus Investments • Profit & Loss account versus Treasury
• Consider what could/should be considered as pure
costs, to be opposed to costs than can or have to be « activated » (on the balance sheet) & amortized
General Expenses or « Fixed » costs
• Employees versus Workers
• Director (self-employed) versus staff under contract
NB: social costs linked to the shareholder of a company working for it under a self-employed status is not to be included in the FP of the company, unless specifically foreseen
The differences in the fiscal status and in the costs berd by the company for both categories are quite significant (eg multiplication effect x 1.34 x 13.92 !)
General Expenses : HR costs
Amortization, Depreciation & Provisions : (= costs not implying a direct cash out)
Amortization is automatically calculated in the
template based on the investments (and the amortization tenor)
Depreciation & Provisions are not included at this stage (not relevant for a starter)
Costs with no impact on treasury
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