Expenses & Costs - How to Spend Money Wisely: Crash Course Entrepreneurship #14

CrashCourse
20 Nov 201910:54
EducationalLearning
32 Likes 10 Comments

TLDRThe video explains different types of business expenses, like cost of goods sold and selling, general & administrative costs. It discusses cost-driven vs value-driven business models, using examples like No Frills grocery stores and Ritz-Carlton hotels. The video stresses carefully tracking expenses to maximize profits and deliver value to customers. It notes that social entrepreneurs incorporate social impact into their business models and must budget effectively. Overall, the video conveys that thoughtfully managing expenses enables entrepreneurial success while upholding responsibilities.

Takeaways
  • 😀 Operating costs for a business fall into two main categories: cost of goods sold and selling, general & administrative expenses
  • 📉 Understanding different types of costs like fixed vs variable helps entrepreneurs plan strategies to stay profitable
  • 💰 Being cost-driven means minimizing expenses to offer lowest prices, being value-driven means spending more on service
  • 🛒 Examples of cost-driven businesses are discount grocery stores like No Frills that cut all possible "frills"
  • 🌟 Value-driven companies like Ritz-Carlton hotels spend more to provide exceptional personalized service
  • 👍 Having economies of scale or scope helps balance costs and value by spreading fixed costs over more goods/services
  • 🎨 In the example, house painter Piper realizes she needs to buy paint and supplies in bulk to make her business work
  • ❤️ Social entrepreneurs track expenses carefully so they can make less profitable choices to benefit society/environment
  • 💡 Sales drive any business, but tracking expenses helps entrepreneurs deliver value profitably and responsibly
  • 🏦 Understanding where money is going by planning and budgeting helps businesses avoid failure and bankruptcy
Q & A

  • What are two major categories that operating costs are divided into?

    -Operating costs are divided into two major categories: cost of goods sold (direct costs) and selling, general and administrative costs (SG&A or indirect costs).

  • What expenses would be considered under cost of goods sold for a magazine startup?

    -For a magazine startup, expenses considered under cost of goods sold would include: writer fees to create content, printing costs of the magazine issues, etc.

  • What are some examples of selling, general and administrative expenses?

    -Examples of SG&A expenses include: salaries for management and administrative staff, office rent and utilities, distribution costs, marketing budget, etc.

  • What is the difference between fixed and variable costs?

    -Fixed costs remain constant in the short term regardless of output volume (e.g. office rent). Variable costs change based on the volume of goods/services produced (e.g. printing costs).

  • What is an example of a cost-driven business structure?

    -No Frills grocery chain is an example of a cost-driven structure. They minimize costs by removing non-essential services and branding to offer maximum savings to customers.

  • What characterizes a value-driven business structure?

    -A value-driven structure focuses on providing maximum value to customers even if it means higher expenses. E.g. Ritz-Carlton hotels provide personalized luxury service.

  • How can a business balance being cost-driven with still providing value?

    -Using economies of scale and scope to spread fixed costs over more units can allow minimizing some expenses while still providing value to customers.

  • Why might social entrepreneurs care about expense planning?

    -Social entrepreneurs aim for social impact alongside profits, so careful budgeting allows them to fund programs benefiting society without sacrificing financial sustainability.

  • What happened when Piper underestimated her expenses?

    -When Piper undercounted expenses like gas and storage in starting her house painting business, she ended up not making enough profit to be sustainable.

  • What can Piper change about her cost structure?

    -Piper can aim for economies of scale by buying painting supplies in bulk instead of separately for each small job to try to increase her profits.

Outlines
00:00
📺 Why Startups Fail and the Costs They Face

The first paragraph introduces common reasons startups fail, including not talking to customers, no market need for their product, not researching competition, and running out of money. It discusses different operating costs like cost of goods sold and SG&A expenses, as well as fixed and variable costs.

05:02
💸Examples of Cost-Driven Businesses

The second paragraph provides examples of cost-driven business models that focus on minimizing expenses, like the No Frills grocery chain in Canada. It contrasts this with value-driven models that prioritize customer experience over costs, like the Ritz-Carlton hotels.

10:06
😊Balancing Costs and Value

The third paragraph discusses balancing cost and value priorities. It highlights economies of scale and scope for reducing costs, while still delivering customer value. It emphasizes the importance of tracking expenses and planning for profitability.

Mindmap
Keywords
💡operating costs
The operating costs or expenses refer to all the day-to-day costs involved in running a business. This is a key concept as managing and minimizing operating costs is crucial for any business to avoid failure and bankruptcy. The video outlines different types of operating costs like direct product costs and administrative overheads.
💡cost of goods sold
Also called direct costs, these include the expenses directly associated with producing a product or service, like raw materials and manufacturing. Tracking direct costs helps determine the profit margin and where money is being spent on making the actual product.
💡SG&A
Selling, general and administrative expenses make up the operating costs not directly tied to production, including management salaries and marketing. Controlling SG&A helps keep indirect costs in check.
💡fixed costs
Expenses like rent that remain unchanged irrespective of output volume. Understanding fixed costs is key to budgeting and ensuring profitability.
💡variable costs
Costs that fluctuate with production volume, like materials. Tracking variable costs helps plan finances as operations scale up or down.
💡cost-driven
A business model focused on minimizing costs wherever possible, like No Frills grocery store. This allows delivering maximum value to customers through lowest pricing.
💡value-driven
A model prioritizing value creation for customers even over costs, like Ritz-Carlton hotels providing personalized service.
💡economy of scale
Producing larger quantities reduces per unit fixed costs. This helps balance expensive value additions while remaining profitable.
💡economy of scope
Cost savings from efficiencies of serving multiple markets with existing infrastructure.
💡social entrepreneurship
Businesses started by social entrepreneurs blend profit goals with positive social or environmental impact. Tracking expenses allows them to balance financial and social responsibilities.
Highlights

Operating costs are expenses paid to run a business day-to-day

Cost of goods sold are expenses directly tied to producing a product or service

Selling, general and administration (SG&A) costs are other expenses like salaries and rent

Fixed costs don't change based on production volume, like rent

Variable costs fluctuate based on production volume, like materials

Cost-driven businesses minimize costs to offer lowest prices

Value-driven businesses focus on customer experience over costs

Economies of scale lower costs by increasing production volume

Economies of scope lower costs by producing multiple products

Understanding expenses helps plan profitable strategies

Track expenses to budget impactfully as a social entrepreneur

Sales drive any business, but tracking expenses drives profits

Know where money goes to keep delivering value

Spend money wisely to make money effectively

Next 3 episodes cover money and business growth

Transcripts

Browse More Related Video

Revenue Streams: Crash Course Entrepreneurship #13

How to File a Nonresident Form 1040-NR for 2023 Taxes

Is Growth Right For You?: Crash Course Entrepreneurship #17

How to Build Customer Relationships: Crash Course Entrepreneurship #10

Tutorbird Demo: Is This Tool Really Worth it?

How to Develop a Business Idea: Crash Course Business - Entrepreneurship #2

Rate This

5.0 / 5 (0 votes)

Thanks for rating: