From Fun to
by Garrett Bryce
age 14, from Oceanside, CA loves to be outdoors riding
her horse Kisses. Keith Peiris, age 13, in London,
Ontario spends most of his after-school hours on the
computer. What could they possibly have in common? Both
are supporting their hobbies by running their own
Manassero mills wheat and bakes bread to support
her horse Kisses.|
Mixing Pleasure and
For Emily, it all started when
she needed to earn money to pay stabling fees for
Kisses. Taking her mother's suggestion to sell homemade
bread, Emily started a company called The Bread Barn,
where she mixes, bakes, and butters up bread and sells
it to pay Kisses' living expenses. Keith is president
and CEO of Cyberteks Design, a studio that offers
professional layout and graphic services to companies
that want to grab Web surfers' attention.
help their businesses stay successful, both Emily and
Keith constantly keep tabs on the sales revenue coming
in and expenses taking money out. Their goals are always
to have enough cash on hand to pay the bills and enough
profit left over to reinvest in the company or spend on
Delivering the Goods
Barn is considered a product-based business, meaning
Emily makes and sells goods or wares that can be
physically touched (things that are tangible). While she
has few operating costs, Emily invests quite a bit of
cash in product costs - the ingredients for her bread.
When she first started the business, Emily added up all
the costs to make a loaf of bread and determined that
each loaf costs 50 cents. To keep sales up at The Bread
Barn, she buys a particular brand of wheat that costs
more but makes higher quality bread. "It costs more than
what you'd buy in a regular store, but if I didn't buy
it, the bread wouldn't sell as well," says Emily.
After she figured her product costs and took
into account what her competition was charging, Emily
decided to sell the bread for $3 a loaf for plain bread,
and $3.50 for others such as cheese-onion or
cinnamon-raisin. She sells about eight loaves each week,
bringing in around $80 a month gross profit. This money
covers Emily's other operating expenses and provides the
cash she wants to spend on Kisses.
| Keith Peiris meets
Chinese Primier Zhu Rongji at a trade conference
in Beijing, China.|
Keith's business is service-based,
meaning he sells items that cannot be physically touched
- his time, talent, and technical knowledge to create
Websites. When Keith got his first client, the 2000
Canada-Wide Science Fair, he already owned the equipment
to do the job. "At that point, I had the necessary
software, like Flash and Fireworks, and I was thinking
of starting a business," says Keith.
completing his first site, Keith incorporated Cyberteks
in June of 1999, and started working up a price list of
services. "Some of the prices in the initial stages were
to cover my software," Keith says. He knows he will need
to upgrade software each time a new version comes out
and replace hardware about every two to three years.
The company's biggest expense is paying
employees, including Keith, for labor on the Websites.
Depending on the complexity of the design projects and
the number of demands on his time, Keith's prices can
vary. "My time is a bit more costly when I have more
clients," says Keith.
No Time to Waste
Emily finds that running a business can be very time
consuming. She doesn't have any problem getting
customers, but she does find it hard to make time every
day to bake bread. "It takes two hours every day, and I
am in theater. I also groom my horse, and I have
school," she explains.
The Bread Barn and
Cyberteks are two very different companies, separated by
many miles. Emily's customers are mostly family and
friends, but Keith hopes to take his business worldwide
with the opening of a production facility in China. He
already has sales offices in seven U.S. states. You can
be sure they're both watching the market for signs of
change, and like true entrepreneurs, they'll be prepared
to take advantage of the next opportunity that heads
Counting the CostsDo
you have a great idea for a new business? Before
you start investing money in production, it is
important to research all the expenses. Most
businesses face two main types of ongoing
Product costs (or cost of
goods sold) are the expenses for the materials and
labor used to produce the tangible products you
sell. These costs vary, depending on the amount of
goods you produce.
expenses (or overhead) are the costs for the
ongoing operation of your business, no matter how
many sales you make.
While most businesses
have some operating expenses, companies like The
Bread Barn that primarily sell tangible goods are
also very concerned with product costs. Smart
entrepreneurs like Emily and Keith carefully
consider the costs associated with every good or
service they offer.
Product Costs for
1. Make a list of all
raw materials, supplies, or ingredients needed to
create your product.
2. Research the
cost of each type of material, noting quantities
as well as prices. (Example: 32 ounces of cooking
oil - $2.79)
3. Define one unit of your
product (one birthday cake, one pair of
4. Figure the exact amount of
each type of material needed to produce one unit.
5. Figure the exact cost for each type
of material in one unit of your
6. Add the costs of all the
materials (and the cost of the labor to produce
the unit, when appropriate) to determine the total
cost for one unit.
7. Compare the cost
to produce the product to its estimated sales
price and assess the product's potential to cover
operating expenses and still make a profit.