The main thing we had to do was get all of our figures sorted. With some research that Caitlin and Charlie had previously done, we started to sort out what was appropriate to our business and what were going to one off costs for start up.
Before doing this we worked out how many hours a year we could work.
The average working week is 40 hours, meaning that for our business it would be 200 hours with the five of us.
Average amount of holidays per year is at 4 weeks.
We also took bank holidays into account. These are 8 days.
We rounded this to 7, giving us 5 weeks holiday all together.
Hours per year = 200 x 47 weeks = 9,400
Hours per year = 9,400
Hours per year (individual) = 1,880
After this we started working on the costs for the business.
Costs to consider:
Rent
Travel Expenses
iMacs
Printer
Laminator
Wacom Tablets
Insurance
Salary
Loan payments
We found a business loan from Halifax which seemed quite good. It allows us to choose from 1 to 10 years repayment, with a 7.9% interest rate per year.
At this point we have worked everything out, but it has all come out at quite low costs and doesn't seem quite right in terms of how much we would have to charge an hour to cover our costs. It came out at around £12.50, which we thought was far too low and we had clearly done something wrong.
After looking over the figures we looked at the document given online for us to refer to and saw that we had missed out a few important things. We also looked back over everything where we got out figures from and found that we had got the rent wrong and only been putting the rent on per week as the per month.
The costs of everything still came out low, but it was a bit more reasonable so we left it at that for now and moved onto adding these to the presentation and going through it as a group to decide the running order.
Running order:
On the evening I decided to go over the figures again and work out if there was something we were missing. We are not entirely confident in them and don't want to go into a presentation feeling this, especially if someone could ask a question about them. I decided to look over them as I am the only one in the group who has a background in working with things like this as I did business studies for A level.
While I originally didn't want to do the figures, I realised that while we can work on them as a group, the others don't know as much as I do about how business figures work.
The first thing I realised was that we hadn't included our salary into the start up costs, which changes all of the figures for our costs, loans and how much we would have to charge per hour.
Costs
Rent£50 a desk per week.
Office = 6 desks.
Building charges 20% tax on top of price.
£50 x 6 = £300 per week.
£300 x 52 weeks = £15,600 per year
£15,600 / 12 months = £1,300
£1,300 + 20% tax = £1,560 per month
Final cost per moth = £1,560
Salary
Standard wage of junior designer = £22,000 per year
Employees = 5
£22,000 x 5 = £110,000 per year
£110,000 / 12 months = £9,166.67 per month
Final cost per month = £9,166.67
iMacs
Individual iMac = £1,599
iMacs needed = 5
£1,599 x 5 = £7,995
Final one off cost = £7,995
Printer
Final one off cost = £145.20
Printer Supplies
Final costs per month = £70
Wacom Tablets
Individual Wacom Tablet = £118.50
Wacom Tablets needed = 2
£118.50 x 2 = £237
Final one off cost = £237
Laminator
Final one off cost = £175
Insurance
Final cost per month = £30
Food
Final costs per month = £600
Utilities
Final costs per month = £150
Accountant
Annual charge = £1,200
20% tax on top
£1,200 + 20% tax = £1,440
£1,440 / 12 months = £120
Final cost per month = £120
Stationary
Final one off costs = £400
Travel
Final cost per month = £1000
Working out start up costs
£1,560 (rent)
£9,166.67 (salary)
£7,995 (iMacs)
£145.20 (printer)
£70 (printer supplies)
£237 (tablets)
£145 (laminator)
£30 (insurance)
£600 (food)
£150 (utilities)
£120 (accountant)
£400 (stationary)
£1000 (travel)
Final start up costs = £21,648.87
Working out the monthly loan is now something I can do. We decided as a group that we would choose to repay the loan over a three year period, as after three years we feel that the business could be at a point where we consider expansion and moving location.
Loan = £21,648.87
7.9% interest
£21,648.87 / 3 = £7,216.32 per year
£7,216.32 + 7.9% = £7,786.41
£7,786.41 x 3 = £23,359.23 (total cost of loan for the three years)
£23,359.23 / 36 months = £648.86
Final cost per month = £648.86
With this, I can now work out the monthly expenses.
Working out monthly expenses
£1,560 (rent)
£9,166.67 (salary)
£70 (printer supplies)
£30 (insurance)
£600 (food)
£150 (utilities)
£120 (accountant)
£1000 (travel)
£648.86 (loan)
Final cost per month = £13,345.53
To work out our hourly rate I first need to work out how much the expenses are for the first year, and then divide it by the number of hours the business does in the year.
Start up costs = £21,648.87
Cost per month = £13,345.53
Start up costs + (Costs per month x 11) = total year cost
£21,648.87 + (£13,345.53 x 11) = £168,499.70
First year expense = £168,499.70
Hourly rate = first year expenses / hours working
£168,499.7 / 9400 = £17.92 per hour
We had previously decided that while our hourly costs were low, we didn't want to charge this to the client, and wanted to have a margin. We had previously decided on £40. We thought that this was reasonable as we are wanting to work for all types of businesses and don't want a higher price to put off small start up businesses.
With 20% tax our cost per hour = £21.50
This means for every £21.50, we are making £18.50 profit.
With this being the first year, we agreed earlier that it was unlikely that we would be working all workable hours. We agreed that a likely amount would be about 60% of the hours, spending the other 40% promoting ourselves or even potentially without work. With our hourly rate almost double, we thought that this was adequate enough to be able to support the business if this is what happens.
With this in mind I worked out what our first year turnover, gross & net profit would be. As we are a limited company, we do have to pay 20% corporate tax.
Turnover
Hourly rate x hours = turnover
60% 9,400 = 5,640
£40 x 5,640 = £225,600
Turnover = £225,600
Gross profit
Turnover - expenses = gross profit
£225,600 - £168.499.70 = £57,150.30
Gross profit = £57,150.30
Net profit
Gross profit - tax = net profit
£57,150.30 - 20% = £45,720.24
Net profit = £45,720.24
Profit for first year = £45,720.24
Overall this means that in the first year our business is profitable and makes quite a good profit.
I then moved onto working out a potential second and third year. We had agreed that in the second year we would be working at 80% hours, and the third would be 100%. Also our overall expenses would go down as we don't have to pay the start up costs again.
Second year
Yearly expenses = monthly expenses x 12 months
Working out monthly expenses
£1,560 (rent)
£9,166.67 (salary)
£70 (printer supplies)
£30 (insurance)
£600 (food)
£150 (utilities)
£120 (accountant)
£1000 (travel)
£648.86 (loan)
Final cost per month = £13,345.53
£13,345.53 x 12 = £160,146.36
Yearly expenses = £160,146.53
Working hours - 80% 9,400 = 7,520
Turnover
Hourly rate x hours = turnover
£40 x 7,520 = £300,800
Turnover = £300,800
Gross profit
Turnover - expenses = gross profit
£300,800 - £160,146.53 = £140,653.47
Gross profit = £140,653.47
Net profit
Gross profit - tax = net profit
£140,653.47 - 20% = £112,522.78
Net profit = £112,522.78
Profit for second year = £112,522.78
Third year
Yearly expenses = monthly expenses x 12 months
Working out monthly expenses
£1,560 (rent)
£9,166.67 (salary)
£70 (printer supplies)
£30 (insurance)
£600 (food)
£150 (utilities)
£120 (accountant)
£1000 (travel)
£648.86 (loan)
Final cost per month = £13,345.53
£13,345.53 x 12 = £160,146.36
Yearly expenses = £160,146.53
Working hours - 9400
Turnover
Hourly rate x hours = turnover
£40 x 9,400 = £376,000
Turnover = £376,000
Gross profit
Turnover - expenses = gross profit
£376,000 - £160,146.53 = £215,853.47
Gross profit = £215,853.47
Net profit
Gross profit - tax = net profit
£215,853.47 - 20% = £172,682.78
Net profit = £172,682.78
Profit for third year = £172,682.78
Overall profit for first three years = £330,925.80
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