7. Balancing the books for food coops ~ Making Local Food Work, Social Business Toolbox

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Budgeting, expenditure, gross profit and cashflow. Considering the opportunities for growth. ~ SUSTAINABLE TECHNOLOGY LINKS: journeytoforever.org ~ http://bank4food.insanejournal.com ~ sustain301.insanejournal.com ~ grow3rows.insanejournal.com ~ community4good.insanejournal.com
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    Balancing the Books  Budgeting, Expenditure, Gross Profit & Cash Flow.Considering the opportunities for income generation. 1. Budgets Establishing a budget is important in order to understand the need for cash flow, ensure youcontrol expenditure and your income/sales meet your expectations. ã Establish budgets based on expected income & expenditure. ã Without budgeting control, businesses can be taken by surprise and this can affect cash flowand survival. ã Budgets can be established by either using the previous year’s expenditure, expectedactivity, industry examples (other similar projects) or the amount of cash the business has tooperate. 2. Identify fixed & variable. Fix as many costs as possible and realistic. ã   Stock. Variable Stock relates to how much you sell so will vary and impossible to control unless you run abox scheme with a fixed number of customers which will therefore be fixed. ã   Salaries. Fixed Wages are usually the largest cost for any businesses, often small businesses use staff thatare paid an hourly rate and it is common for these costs to increase if not strictly controlled sointroducing fixed hours is an effective way to manage this. ã   Premises. Fixed Rent, rates, telephone & power – usually consistent and don’t vary dramatically with salesalthough power costs have increased considerable over the past few years. ã   Vehicle. Fixed Insurance, tax, services. ã   Fuel. Variable Depending on use but an increase in deliveries, i.e. a growth in sales points, could lead to anincrease. ã   Packaging. Variable Bags, etc relate to number of purchases. 3. Gross Profit ã Sales – Cost of Sales = Gross Profit (G.P). ã For example; in the case of a fruit and vegetable stall Greenwich Community Food Co-opG.P is the money left after the fruit and vegetable (& bags) have been paid for. It is importantto identify G.P for a number of reasons. ã Cost of sales are the main variable cost, other costs should be consistent (*salaries but notcasual relating to sales levels) so it is very important to understand this cost and manage itclosely. ã Establish a gross profit as a means to identify business performance, and the sales levelsrequired for a business to break even if all other costs are fixed. The Social Business Tool Box7). Balancing the Books for Food Co-ops    Box 1. Greenwich Community Food Co-op Sales & Gross Profit The Greenwich Community Food Co-op (GCFC) has 8 street based markets stalls with salesranging from £60 to £300 each stall.Weekly sales £1300.00 in cashCost of sales £871.00 (fruit, vegetables & bags)Gross profit £429.00 (33%)Fixed weekly costs (& fuel) £1,486.00(Net loss) funding £1,057.00Currently the GCFC receives funding from the Local NHS, and GCDA, a local development agency.Understanding the G.P allows the co-op to know the sales targets it needs to achieve to; ensure itbreaks even with current funding, its future funding requirements and growth required to ensuresustainability and freedom from funding.1) If all stalls could achieve sales of £300 total sales would be £2,400, without any increases tofixed costs.2) If another 4 stalls (making 12 stalls) are opened achieving sales of £300 total sales would be£3,600 a week. The reason for suggesting 12 stalls is this can be achieved with current fixedcosts.3) If 12 stalls achieve sales of £375 each week then the total weekly sales will be £4,500.Weekly sales £4,500.00Cost of sales £3,015.00Gross profit £1,485.00Fixed weekly costs (& fuel) £1,486.00Net loss/funding £1.00 (this is the break-even position)    Gross Profit Mix   ã Use a mix so that a balance can be made between items with high & low GP to ensure GPconsistency. For example in the case of Greenwich Community Food Co-op their G.P onbananas is often much lower than 33% but seasonal vegetables are often higher so a mix isused to achieve 33%. This mixing is often used in catering when hot drinks and soups havemuch higher G.P’s than meat dishes. ã A tip is to maintain a higher price even when the market price drops for a week or two.   ã Introduce new markets with higher G.P’s – see example below Box 2.  Monitor Waste   ã Record all wastage this will impact on your G.P. ã Waste can be minimised through good stock rotation, selling things cheaper as they aregetting close to disposal, finding alternative customers for very ripe produce; caterers. Havingmore than one outlet operating different days of the week so unsold stock is minimised. Stock Control & Theft   ã As above ensure good stock rotation to avoid waste and over ordering. Implement stockcontrol systems to monitor the above and theft. Income   ã Place – location, footfall.   ã Price – appropriate for target markets and compares to competitors. ã Promotion – advertising. ã Product/ Sales – diversifying; wholesale, delivery, public sector contracts, caterers, newproducts (See Example Box 2). ã Maximise your resources; lease out capital equipment that is underused, consultancy,commercial markets, second hand. ã Training & consultancy; Train to Gain/ LSc funding for staff training (retention of staff &volunteers). Consultancy; sell your expertise. ã Commissioning; Local NHS, Local authorities to provide fruit for particular communities,events, programmes. ã Referral – NHS, G.P’s. ã Healthy Start Vouchers – registration.    Box 2. Product Diversification Greenwich Community Food Co-op’s gross profit is lowest on their market stalls (33%), slightlyhigher on wholesale (35- 40%) and fruit salads (60-65%). This mix will quickly give you an idea onwhich areas of business to focus on when considering additional activity and growth.Fruit salad sales £1,300.00Cost of sales £455.00Gross profit £825.00 (65%)Weekly fixed costs* £1,486.00Loss/ funding £641.00*Staff costs could be less, as fruit salads preparation and delivery are less labour intensive.Fruit salad sales £2,300.00Cost of sales £805.00Gross profit £1,495.00 (65%)Weekly fixed costs £1,486.00Net profit £9.00 (this is the break-even position)This demonstrates that product diversification which allows greater gross profit can achieve financialsustainability at much lower sales.GCFC receives local NHS funding to operate street based stalls so although they are unlikely toachieve financial sustainability on their stalls they are subsidised to offer this service. If this fundingwasn’t available it would be worth considering an emphasis on other areas of business; whole selland fruit salads production. Cash flow & Credit As well as Gross Profit and the understanding of your costs, it is very important to have an up todate and accurate understanding of your cash flow, which is the flow of money in and out of yourbusiness. That figure varies rapidly and it is crucial to understand how those flows behave so thatthe trading of the enterprise can be guaranteed.If goods are sold on a credit basis, ensure that payments arrive in time. If they don’t, cash flow willdeteriorate to a level that is incompatible with cash-flow needs.Sometimes opportunities arise with the possibility for expansion and diversification. Greater volumeof sales would normally be associated to greater requirements of cash. Ensure calculations aremade in advance to see how much cash is needed. If credit sales (debtors) are introduced ensurethat controls are in place and monitor your debtors.
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