The following is a preview of the True Cost Picture Workbook. For complete workbook features, please download the workbook file on the left hand side.
Table of Contents
Step 1: Enter Data from Income Statement (Profit & Loss Statement)
Step 2: Identify All Contributions
Step 3: Identify your social costs
Step 4: Adjusted Income Statement
About this Workbook
This Workbook is designed to help you implement some of the concepts covered in Financial Intelligence: A Guide for Social Enterprises. We strongly recommend that you review the Guide to better understand the objectives of financial reporting and unique circumstances facing social enterprise. Working through this Workbook will help you clearly see, thus help you to manage, costs that go into pursuing both your financial and mission objectives.
This Workbook does not replace your accounting system or other financial reports. Rather, it is an analytical tool to identify adjustments and reporting options that you may choose to incorporate more permanently in your accounting system and reporting package.
The Workbook is presented as an excel spreadsheet with multiple linked tabs where your financial data is accumulated, adjusted for hidden and social costs, and financial information is generated in a useful format to provide further insight into your financial performance. Walk through the Workbook, step by step, to develop and understand your true cost picture. Detailed instructions and guidance on how to use the information generated can be found under each tab.
Additional Tools:
Worksheet - Identifying and Measuring Hidden Costs and Contributions
Worksheet - Identifying and Measuring Social Costs
Case Study - Stable Roots Landscaping
Guide - Financial Ratio Analysis
How to Use
There are five basic steps to this worksheet:
Step 1: Tab 1 - Enter data from your Income Statement (Profit & Loss Statement)
Step 2: Tab 2 - Identify all contributions to your financial picture including the value of discounts, donations, volunteer time and costs covered by a non-profit parent agency (if applicable).
Step 3: Tab 3 - Estimate your social costs.
Step 4: Analyze your results.
Tabs 4 and 5 - You can now see the difference between core business performance and the social component of your business.
Tab 5 - Useful ratios are automatically generated that provide further insight.
Tab 6 - Information is presented in the "Double Bottom Line" format, including % of sales analysis
Use the worksheet tabs to navigate through the worksheets in the tool. Data entered is automatically linked to other worksheets.
Refer to the Stable Roots Case Study for a complete illustration of the Workbook and related concepts.
| Enterprise Name | |
| Period |
Step 1: Enter Data from Income Statement (Profit & Loss Statement)
Select your annual or monthly trial balance or income statement. Enter the period of the statement in the first cell. Enter data from your trial balance into the appropriate sections (Sales, Cost of Sales etc.) If you do not separate out "Cost of Sales", use either section 2 or 3 to record all operating costs. Notice that gross and net margin ratios are automatically calculated at the bottom of the page. Data will be automatically linked to subsequent sheets.
Period
| 1. Sales | |
| Total | $ |
| 2. Cost of Sales | |
| Total | $ |
| 3. Other Operating Expenses | |
| Total | $ |
| 4. Other Income/Grants | |
| Total | $ |
| 5. Other Expenses | |
| Total | $ |
| Gross Profit Net Profit (before Other Income) Net Profit (including Other Income) | $ $ $ |
| Gross Profit Margin Net Operating Margin (before Other Income) Net Operating Margin (including Other Income) | $ $ $ |
Step 2: Identify All Contributions
Use the accompanying Word Worksheet "Identifying all Hidden Costs and Contributions" to guide you through the identification and quantification of hidden costs and other contributions. A good starting point is to review the line items of your trial balance or income statement. Once you have determined that a hidden cost or contribution is significant enough to be included in your financial picture, enter the description and amount in the appropriate columns below, either as (I )"donations, volunteer, discounts" or (II) "covered by non-profit parent". These adjustments will be carried forward to subsequent tabs.
Period
| I | II | III | |||
| 1. Sales | Description of Contribution | Method of Calculation | $ Estimate: Donation, Volunteer, Discounts | $ Estimate: Covered by non-profit parent | Total Contributions (I+II) |
| Total | $ | $ | $ | ||
| 2. Cost of Sales | |||||
| Total | $ | $ | $ | ||
| 3. Other Operating Expenses | |||||
| Total | $ | $ | $ | ||
| 4. Other Income/Grants | |||||
| Total | $ | $ | $ | ||
| 5. Other Expenses | |||||
| Total | $ | $ | $ | ||
Step 3: Identify your social costs
Use the accompanying Word Worksheet "Identifying Social Costs" to guide you through the identification and quantification of social costs. Again, a good place to start is the line items of your trial balance or income statement. Once you have quantified all social costs, enter the information below. Adjustments will automatically carry forward to subsequent tabs.
| 1. Sales | Adjusted Total | Description of Social Cost | Method of Calculation | Social Cost Portion |
| Total | ||||
| 2. Cost of Sales | ||||
| Total | ||||
| 3. Other Operating Expenses | ||||
| Total | ||||
| 4. Other Income/Grants | ||||
| Total | ||||
| 5. Other Expenses | ||||
| Total |
Step 4: Adjusted Income Statement
| I | II | III | IV | V | |
| Sales | From Statement | + All Contributions | Adjusted Total I+II | Social Cost Adjustments | Business Portion III-IV |
| Total | $ | $ | $ | $ | $ |
| Cost of Sales | |||||
| Total | $ | $ | $ | $ | $ |
| Other Operating Costs | |||||
| Total | $ | $ | $ | $ | $ |
| Other Income | |||||
| Total | $ | $ | $ | $ | $ |
| Other Expenses | |||||
| Total | $ | $ | $ | $ | $ |
| Net Income | $ | $ | $ | $ | $ |
Summary
The summary provides key income statement results, breaking results down between core business and social costs. Financial ratios can be compared to other periods or similar businesses to measure performance trends. To see the full income statement detail according to different views, see the 'full statement' tab.
| social & business costs | just social cost | just business | |
| 1. Sales 2. Cost of Sales 3. Other Operating Expenses 4. Other Income / Grants 5. Other Expenses | $ $ $ $ $ | $ $ $ $ $ | $ $ $ $ $ |
| Gross Profit Net Profit (before Other Income) Net Profit (including Other Income) | $ $ $ | $ $ $ | $ $ $ |
| Gross Profit Margin Net Operating Margin (before Other Income) Net Operating Margin (including Other Income) |
Negative social costs in sales refer to revenue not earned due to mission. Comparable business costs depict what would have been earned if not for mission. (assuming revenue would have been earned in market).
Business Cost Recovery Ratio:
(Sales/Total Business Costs)
To what degree business revenues are covering business expenses (1=100%)
Reliance on Grant and other Income:
(Grant Income/Total Revenue)
Shows grant income as a percentage of total revenues from all sources. This shows to what extent your business is relying on grant income rather than business income
Operating Self-Sufficiency:
(Sales Revenue/Total Costs)
Measures the degree to which all the enterprise's expenses are covered by its core business and is able to function independent of grant income
Double Bottom Line Report
The Double Bottom-Line Report is a useful presentation format that can be easily derived from the information generated by this workbook. It clearly delineates between traditional business performance and mission performance. Funders will clearly see the social costs associated with your operations, information they need to determine the extent to which they are willing to subsidize your business. Funders may choose to limit subsidy to mission-related costs or may go beyond that to support actual enterprise-building outlays such as capital investment. You will also clearly see if the cost of achieving your mission objectives are increasing or decreasing over time. This will help managers and stakeholders assess the effectiveness of your programs.
The “Percentage of Sales Analysis” expresses every line item in relation to revenue. This type of analysis provides a good overview of underlying cost trends in relation to revenue levels and provides much better insight than a dollar-to-dollar comparison. Tracking these rates over a number of periods and years is most useful. This analysis can also be applied to balance sheet accounts.
Note that social costs have to be inputted manually from Column IV of the Adjusted Income Statement since these items can come from any line on the income statement.