Post-Hibernia fund expansion and the 2015-16 fiscal year saw the maturation into a social enterprise budget which captures the difference between earned income and untied funding, as well as a contribution margin analysis (these terms will be explained below).
In this model the proposed budget sits at $1,679,450.
Earned Revenues refers to money that is obtained through payments for carrying out the construction work. This is estimated to be $1.3 million and includes:
- $543,000 (32% of revenue) in government contracts from Newfoundland Labrador Housing Corporation for basements and retrofits
- $662,000 (39% of revenue) from Choices for Youth to cover a portion of a major capital build as well as ongoing maintenance of CFY buildings
- $174,000 (10% of revenue) from private sector projects.
Untied Funding refers to grant funding that is not linked to a specific construction project. This revenue equals $300,000 (18% of all revenues) and includes:
- $250,000 proposed investment from Advanced Education and Skills
- $50,000 draw down on the Hibernia fund (the remaining balance becomes a legacy account to serve as a contingency against future business risks).
Expenditures are separated into Cost of Goods sold (variable costs), enterprise costs, social program costs and administrative overhead and total $1.6 million. The budget therefore becomes balanced.
Variable Costs of $1.2million (or 72% of total budget), include:
- 28% for direct labour costs of youth and Lead Hands allocated to projects
- 33% for sub contractors on projects
- 37% in project materials
- ~1% for variable overhead (i.e. Insurance on specific jobs)
Enterprise Costs include fixed costs of operating the training program. This comes to $ 206,000 or 12% of the total expense budget. These include salaries for project management and business management, training, travel, IT, etc. This is similar to the 2011-12 budget.
Social Program Costs include fixed costs for operation of the social program. This is basically the direct, one-on-one support a youth can access through the enterprise and include a Youth Supports Coordinator, the GED program as well as some small operating expenses. The total cost is $72,000 or 4%.
Administrative Costs (similar to the 2011-12) includes office rental and administrative fees, but also includes the Coordinator and Administrative Assistant. The total cost is $192,000 or 11%.
There are two important metrics for T4T - the percentage spent on program versus administration and the contribution margin.
Program versus Administrative Costs: Since the variable costs and enterprise costs together make up the overall training program, together with the social program costs it can be said that 89% is spent on running the training program and providing supports. The administrative costs are 11%.
Contribution Margin: By taking the earned income only and subtracting the variable costs, the contribution margin can be established. This is to determine the ability of the enterprise to generate enough revenues to cover costs and attain sustainability.
The contribution margin is:
- Earned revenues: $1,379,450
- Cost of Goods Sold: $1,209,457 (72%)
- Contribution Margin: $169,994 (18%)
From the perspective of the Finance Department, any future project proposed by Train for Trades must meet or exceed the target of 18% Contribution Margin. There will be some flexibility if the project proves to be a great learning opportunity, but the goal is to meet or exceed this target annually.
Since the contribution margin is less then our carrying fixed and overhead costs, the untied funding is required for 2015-16. However, as the enterprise continues to develop, it is anticipated that enough work will be generated that T4T will be able to cover off the $300,000 in untied funding through growth in government or private sector contracts. Current projections suggest that T4T will be completely sustainable and free of untied funds within the next five years.
It is at this time that the enterprise will begin turning a profit (in the traditional sense) and producing revenues to be reinvested into future enterprise growth or the wider Choices organization.