Okay the next part of your model is the cost analysis.
Cost analysis is exactly that.
It's an accounting of how much
money you'll be spending as you build your business.
The idea with the cost analysis is not to be able to track every single penny
exactly, but instead to get a rough sense of how much money,
needs to be spent to build the business.
It will give you information, and it depends on information like the cost
of goods sold, which is a summary of all the labor and
material that goes into building your product.
And a lot of the operating expenses, which we touched on earlier.
But those are things like, Labor costs, on the R&D side, all the sales and
marketing people, like me, and all of the, the administrative functions like finance
folks, and even the General Managers, like the CEO, and some of the, other managers.
All fall into this operating expenses bucket.
So the key here is to break everything down.
For this you need to have the key inputs like the number of
employees that you're planning on hiring, the salary you're going to pay them,
the amount of space you need.
The cost of the facility, if you need to buy special equipment.
All of these things need to come together in one place to help you
estimate how much it's going to take to build your company,
and, again, the idea here is to do a good back of the envelope, and
we'll talk about some assumptions along the way that can help you get there.
So, this is our Cost Analysis spreadsheet.
The first thing, that you'll notice is it
actually looks a whole lot like our staffing plan, and that's the case.
So, the first thing we do is pull the employee information from our first tab
and summarize it.
By employee type and
the number of employees you have hired for a particular year.
As I said, the biggest part of your cost in a start-up company
is actually your salary costs.
So, what you want to conceptually do is multiply the number of employees for
a particular function by there salary which will
give you the employee cost in a particular time period.
So, what we're going to do here is actually calculate the employee cost,
and to do that, you have to have salaries per employee type.
So you can see here on the screen a list of employees and
their associated salaries.
You also see this column here which is called the factor column.
So this is a little trick I picked up when I was developing a model of my own, and
all employees require things like health insurance, and computers,
and electricity, and they basically have some basic costs that are associated with
them just being employees, and a good rule of them is to actually go ahead.
And multiply your salary by a particular factor to get a rough estimate for
how much they actually require.
To summarize employee cost,
what you need to do is go ahead and take all of the employees of a particular type.
So in this case engineers.
Multiply it by their salary, by the factor in a given time period and
that will give you a total employee cost for that particular type of employee.
Now you can see if we go ahead and do that for all of our employees.
We can determine how much we're actually spending each year,
on each different type of employee.
We'll use this information later as we go through and
build all of the rest of our cost analysis.