Cost of good sold (COGS) is an important figure to know. Cost of goods sold is the price that your business paid to acquire the products that you’ll sell to your customers in retail/wholesale businesses, or the cost of the raw materials, labour and supplies in manufacturing businesses.
Why should you know your business’ cost of goods sold? It’s important to know so that you can better understand your business – your profits, and where you might be able to improve efficiencies.
How to calculate cost of goods sold
Most small businesses use the following formula to calculate their COGS expense:
Value of goods inventory at the beginning of the period
Value of any goods purchased for resale during the period
Value of goods inventory at the end of the period
The cost of goods sold during the period
And there you have it! Calculating your cost of goods sold is another tool you can use to help your small business succeed.
It’s the start of a new year, and if you’re like many Canadians, you may have resolved to finally start your entrepreneurship journey this year.
But wait – not so fast. We know it’s exciting to finally start your small business, but there are many things to know beforehand. Here are some things that, in our years of educating entrepreneurs, we’ve identified as some of the most important questions prospective entrepreneurs should ask themselves before starting a small business.
Are you ready to start a small business?
What is most important to me in running a small business – making money or doing what I love?
Do I have management or technical experience in a business similar to the business I want to start?
Do I have any accounting or bookkeeping knowledge?
How well do I handle risk?
How do I cope with stress?
Are my finances strong enough to support me if my small business doesn’t see income immediately?
Do I have the support of my family and friends?
Am I willing to work longer than usual to start my small business?
If you’ve answered “no” to any of these questions, no problem! It’s actually a good thing. Knowing what you don’t know is important, and can help you find – and fix – critical gaps in your knowledge. Small business training will increase your odds of success. Nearly half of all small Canadian businesses fail within two years, so getting essential small business skills is really important.
How can you find out if you’re ready to be an entrepreneur?
Download our free Self-Assessment for Entrepreneurs to take an honest look at your situation right now. Take your time and do as much research and training as you can before you start your small business – it may make all the difference to your success.
We use the term empathy in business to reflect our understanding of our customers – who they are, what they like and don’t like, what motivates them to buy something or not, and what pains we can solve for them.
Why is empathy important in business?
When we show empathy for our customers, we understand them from their perspective and, as business owners, we produce better services and products for them. Having empathy allows us to understand what needs our customers have (pains) and helps us estimate the value our products or services will create for our customers (gains).
Many small business owners get too focused on solving a particular problem that’s important to them, but maybe not to their customers. This is why developing an Empathy Map is so critical when designing or launching a new venture. You will be able to identify insights about your potential customers that you did not know were there. You’ll be able to make products or services that stick by taking the time to understand your customer, and developing empathy for them.
The Empathy Map and entrepreneurship
The Empathy Map, shown above, was created by David Grey, of XPLANE and author of The Connected Company and Gamestorming. This tool has been used by millions of small business owners and their teams to develop deep, shared understanding and empathy for their customers.
1. Start with the Goal section, by defining who will be the subject of the Empathy Map and what you want them to do. This should be framed in terms of new and observable behaviour.
2. Once you have clarified the goal, work your way clockwise around the canvas, until you have covered See, Say, Do, and Hear. The reason for this is that the process of focusing on observable phenomena (things that they see, say, do and hear) is like walking a mile in your customer’s shoes. It gives us a chance to imagine what their experiences might be like, to give us a sense of what it “feels like to be them.”
3. Only after you have made the circuit of outside elements do you focus on what’s going on inside your customer’s head. The large head in the centre is one of the most important aspects of the map’s design. The whole idea is to imagine what it’s like to be inside someone else’s head.
To many, chains and franchises can seem the same. However, they are quite different from one another. Here’s how to tell the difference between a franchise and a chain:
Characteristics of a franchise
Franchises are one pathway into entrepreneurship. With a franchise, a franchisee (the entrepreneur), buys the right to market and sell certain products and services from a franchisor (the person who owns the overall franchise) through a legal agreement. Fees and a share of the income are then paid to the franchisor over a specific period of time. The franchisee is in charge of operations, finances and HR for their specific location of the business.
There are several types of franchise agreements, all with different responsibilities, purchases, policies, procedures and rights. These terms are often outlined in the agreement and operation manual to make sure the franchise as a whole is consistent – a very important thing in franchising!
Examples of a franchise
Most of us think of fast food when we think of franchise. However, lots of industries that have them, including automotive, real estate, accommodations, business services and retail. Tim Hortons, 7-Eleven, and RE/MAX Canada are all examples of a franchise.
A chain is a business that’s usually under one main corporate ownership, which opens and operates locations itself. This is the vital difference from a franchise. Franchise locations each have different owners, reporting to the main franchisor. But each chain location doesn’t have a different owner – each chain location is owned by the corporate office.
Examples of a chain
Some popular examples of Canadian chain restaurants and stores are Mark’s Work Wearhouse, Swiss Chalet, and Sobeys.