In this episode, Mak and G look at what a company is, how they make money, and what they do with the money they’ve made…
If you want to start making more money, first you’ve got to start thinking like a company.
But what actually is a company, how do they make money, and what do they do with the money once they’ve made it?
Mak and G set out to answer these questions and find out how we can make more money by starting our own company…
“I could sell my toys to buy new ones.” – G
“A company no matter what they do, they all have to sell something and they make money after all of their expenses.” – Mak
00:17 – Reasons we need a bigger allowance.
00:54 – Different ways you can earn more money without doing chores.
01:25 – What a company is and how they make a profit.
03:44 – The difference between revenue and profit.
04:25 – How to work out what your profit is.
06:12 – What companies do with the profit they’ve made.
06:42 – How you can make money from selling old toys.
07:55 – The difference between a product and a service.
09:21 – The profit McDonald’s makes from a hamburger.
Connect with Ben Jones:
MAK: Hi, I’m Mak.
GRANT: And I’m G.
BOTH: And you’re here for money with Mak and G.
MAK: Hey, Dad.
DAD: What do you need Mak? What is it? Everything okay?
MAK: Yeah, I was just thinking I’d really like to have a bigger allowance. You know, I’ve got a lot of expenses.
DAD: Oh, really? Tell me a little bit more.
GRANT: Hang on. Wait, I want to be part of this conversation.
MAK: As I was saying, a kid like me has a lot of expenses and $5 a week in allowance won’t cut it anymore.
GRANT: Yeah, me too.
DAD: Okay, okay. Well, I hear you. But money doesn’t grow on trees, as you know by now. So Mak and G, where does money come from? And when you want more, how do you get it? Alright, kids, when you want more money, you have to earn it. That’s why you get paid an allowance for doing your chores. You earn it. So let me ask you, what are some ways you could earn more money outside of doing your chores?
GRANT: Oh, I know. I could sell my toys to buy new ones.
MAK: Hmm, yeah. But the stuff I want now is more expensive than the stuff I currently have. So how does that work?
DAD: Great question. And good idea G, first, I have to ask if you remember what a company is?
MAK: Yes, dad. Of course, a company is a place where people go to work. And then they get paid.
DAD: Yes, that’s true. But companies are more than just a place. They provide something, whether it’s a service, or a product of some kind, service could be cutting one or a product could be a video. And there is an exchange between a customer and the company.
GRANT: Oh, I get it. So back to the toy scenario.
MAK: One track mind with this guy.
GRANT: So when I go to Target, they exchange it as a toy for my money, right? They sold me a product.
DAD: Yep, that’s a scenario right. And it completely makes sense. Target is a company that resells the toys that are made by somebody else. That’s the real toy company, the place that actually makes the toy. Like Lagos, Target doesn’t make the Legos in the back room. But the company Lego does.
MAK: Okay, yes, we get. But how does this impact me wanting to make more money?
GRANT: One track mind with this one.
DAD: Hang on Mak I’m getting there. So whether the company has a target or the place that makes the toys, they both have to make what is called a profit to be healthy. So can you guess how profit is earned?
GRANT: Wait, did you say healthy? How can a company be healthy or even sick? It’s not a Person.
DAD: Well, healthy can mean the same for a company as it does for us. If we’re sick, we can’t do all the fun stuff we want to do when you’re sick. G, you don’t even play your video games. You sit around on the couch and moan.
MAK: Plus he drinks a lot of Gatorade too. So is this money healthy?
DAD: Absolutely. If a company doesn’t have enough money, it isn’t financially healthy, which means they don’t have enough money to create new products, hire people or even pay their bills.
MAK: Isn’t that the normal stuff it should be doing?
DAD: Absolutely. Just like you don’t do your normal stuff. A company has the same problem. And it’s pretty serious. If you can’t make those things happen. Almost like going to the hospital. You have to get better first, just like you and me before we can get back to running and jumping and playing and singing. All the things we think about when we say we’re healthy.
MAK: Okay, so back to profit? Isn’t that the money someone pays you to buy the toy? What am I missing here?
DAD: Well, that’s not the money that the company receives is called a sale or revenue because they sell the product or the toy to the customer, which is you. However, to get the profit, you have to subtract out all the expenses to make the toys that includes the expenses for the machines to make the different pieces, paying people to put those pieces together at the expense of the little pieces of plastic and metal and other stuff that goes into the toy.
GRANT: So sales not a profit?
DAD: Correct a moonbow G man.
MAK: Okay, so what is a profit?
DAD: Well, the toy company has to be able to sell the toy at a price that is more than the expense that it cost to make it and a company can’t make a profit if it sells only one single toy. Mak Have we ever bought a toy for $100,000?
MAK: How could no dad that is way too expensive. That could be the price of a house.
DAD: Exactly. But say for instance, a company buys a $200,000 machine to make a $5 doll. You’d lose a lot of money if you only sold one doll at five dollars.
GRANT: You have to sell the dough for 200,000 just pay for the machine. And that doesn’t include the electricity. People. He says in other stuff.
DAD: You nailed it, you have to sell a lot to cover all the expenses. And if you don’t, then it impacts the health of the company, which as we just said, is their ability to make a profit. Just like you need to exercise enough to be healthy or eat the right food, a company has to sell enough at the right price to make a profit. Now, does that make sense?
GRANT: I feel like there’s a lot of people involved here. I just want to make some extra money.
MAK: Yeah dad, you’re kind of losing our interest here. And I’m not talking about the interest we earn on our money.
DAD: Okay, wait, I thought you guys wanted to make more money. Did I get that wrong?
MAK: No, but that’s a lot of talk. Okay, I’ll listen. Grant, come on.
GRANT: Fine, but uh, better get back to making some serious green.
DAD: Okay, okay. So where were we?
MAK: Well, you were saying that a company, no matter what they do, they all have to sell something. And they make money after all these expenses.
GRANT: Yeah, that’s profit. Right, dad?
DAD: That’s right on the money. So once they’ve covered all their Costs or expenses, they make money, revenue minus expenses creates profit. And guess what you can do with profit?
MAK: Buy more stuff?
DAD: Oh, well, yeah. If that’s what you want to do, the companies can use it for a lot of things. They can give some of the money back to the workers or owners as bonuses. They can reinvest it back into the company, they can also buy inventory.
GRANT: Can you just tell us how we make more money?
DAD: Okay, all right. All right. What could you do to make more money? If you sold your toys to buy new ones? How would you make a profit?
MAK: Oh, I know. I know. He’d have to sell more than his costs, which would leave him with profit.
DAD: Yep, that’s exactly right. And what would your expenses or costs be?
GRANT: Well, I’ll be selling my old toys. So I don’t think I have any.
DAD: In this case, you’re right. You wouldn’t have any because you got them as gifts for your birthday. But businesses aren’t as lucky. That would be an awesome business model, all sales and no expenses.
MAK: So since I sat through this amazing educational experience, can I get paid? You know, for my time, time is money dad.
GRANT: Yeah, dad.
BOTH: Dad, hey.
DAD: Mak, and G are so funny. They’re always looking for ways to find extra money by selling their stuff. Checking the sofa for extra coins are asking grandma for a little extra cabbage. But creating money usually takes effort and creativity. And you have to have more sales than expenses. As you think about it, here are a couple things to remember. First number one is that companies make a product or service or they make both and they want to do it so they can sell more than it costs to produce. Now something that kids understand is McDonald’s, they sell 225 million hamburgers a year, that’s 75 Every second, if they sold each one for $1, their revenue is $225 million on hamburgers alone.
Now, a product is something that is made that you can actually reach out and touch like a big old juicy Big Mac. Now, Disney has theme parks most of us know about Disney World, that’s a really a service, they give you a magical time. But if you bought Mickey Mouse ears at the park, that would be a product, something that you can touch makes you look silly and deep down once again gives you that magical feeling. Did you know that Disney has sales of over $6 million a day at each of its parks? That’s crazy, because that’s over $2 billion a year? Oh yeah. So companies will make a product a service or both. Sales is the number that a company collects when they give you a service or product for money. But the company isn’t really healthy unless it’s making a profit on a regular basis. If you lose money each year, you can’t stay in business because you aren’t healthy, and would go bankrupt and die.
Now, the second thing is profit. That’s the amount that’s leftover I was just talking about. I saw that a hamburger cost about 45 cents to make. So for the profit on a hamburger that sold for $1, it’s 55 cents per hamburger that’s $1 that they collect minus the 45 cents that it cost equals 55 cents. That’s that difference between the sale and the cost but McDonald’s has to also pay for a lot of other stuff. They have to make the hamburgers, right? People do that right? Give me three Big Macs, maybe you need to rent the building to pay for the electricity, you gotta cook it. You got to go ahead and do some other stuff in order to make it all pull together. So there are lots of other things to pull in there. Those all have to be considered in your profit calculation. If Mak and G want to make more money, they have to sell something for more than it cost to make. All right. That’s it for this one. Stay tuned just a minute longer for the Preview of next week’s episode.
MAK: All right G. Do we really need to make more money?
GRANT: Yeah, I agree. What are you thinking?
MAK: Well, what about creating a company that makes profit?
GRANT: Yeah, let’s do it. Hey dad, do you know how to create a company?