Cumulative review: Value, money, and business systems
Review customer value, business models, profit, cash, capacity, and decision rights through one company.
Reconstruct a business model from memory and solve a new revenue, profit, and cash example while naming the stakeholder affected.
Overview
Summit Training's manager wants to accept more work and spend money on advertising.
Review Lessons 001–006 with three minutes of recall, ten minutes on the questions, and ten minutes checking answers. Use brief notes and a calculator.
Summit, its policies, and all figures below are fictional teaching assumptions.
Recall from memory
From memory, write the questions you would ask to understand any business: its customers, offering, delivery, and money flows.
Then recall Cedar Home Services from Lesson 006. Why did scheduling help allow more completed visits, while advertising did not? What limited growth after scheduling improved?
Company facts
Summit is an established company that provides live spreadsheet workshops for employers. Department managers buy a two-hour session for up to eight employees for $500. They want employees to produce routine reports with fewer errors and less rework. Their alternatives include recorded courses and asking experienced staff to teach colleagues.
Summit wins work through referrals and direct outreach to employers. A coordinator confirms needs and books sessions; trainers prepare examples and deliver workshops using a video platform and reusable teaching materials. Clients return when the instruction helps employees do their work.
For September, all 12 workshops were completed and accepted. The remaining customer payments are expected in October.
| September item | Amount |
|---|---|
| Completed workshops | 12 at $500 each |
| Cash received from those customers | $2,500 |
| Total September expenses | $4,200 |
| September expenses paid during September | $3,500 |
| Cash at September 1 | $4,000 |
There were no unpaid customer invoices or supplier bills at September 1. All expenses belong to September. There are no other transactions; ignore income taxes.
For October, 12 workshops are already booked and four more are requested. Trainers can deliver 16 workshops, but the coordinator can process only 14. Every workshop requires both activities. There is no extra staffing available at present.
The manager proposes paying $3,000 for advertising on October 1. The unpaid September supplier bill must be paid October 2, before any October customer collections. Assume no other cash movements on those two days. Company policy lets the manager approve spending up to $1,000; larger amounts require the owner's approval.
Review questions
- Describe Summit's customer benefit and one alternative. Explain why “two hours on a video call” is an incomplete description of its value.
- Write four sentences mapping who pays, what they buy, how Summit finds and serves them, and why they return. Name one resource and one activity separately.
- Calculate September revenue, profit, ending cash, money owed by customers, and unpaid supplier bills. Explain why profit differs from the change in cash.
- How many of the four additional October workshops can Summit currently promise? Name the constraint and one customer consequence of accepting all four.
- Can Summit pay the proposed advertising cost and the supplier bill on time with the supplied cash? Calculate the shortfall, identify who may approve the advertising, and name two affected stakeholders.
Recommend whether to accept work and buy advertising in two sentences. Name one fact to check. Attempt the questions before reading on.
Answer
Customer value and the business model
Employers want staff to make fewer reporting errors and spend less time correcting them. A live session is part of the offering; the useful result is improved work. A recorded course or internal coaching could provide that result too. Summit must establish whether clients actually experience the benefit.
Summit serves employers whose staff need practical spreadsheet skills. Employers pay $500 per completed workshop, with some cash arriving later. Referrals and direct outreach bring in customers; a coordinator, trainers, software, and teaching materials support delivery. Clients return when the training improves employees' work.
Expertise and software are resources. Preparing examples and booking sessions are activities.
Your recall should also cover costs, payment dates, funding needs, and growth constraints.
Revenue, profit, and cash
Revenue is 12 completed workshops × $500 = $6,000. Profit is $6,000 − $4,200 = $1,800. Include all September expenses, including the portion not yet paid.
Ending cash is $4,000 + $2,500 − $3,500 = $3,000. Cash therefore fell by $1,000, despite the profit.
Customers owe $6,000 − $2,500 = $3,500 in accounts receivable, meaning amounts due from customers. Summit owes $4,200 − $3,500 = $700 in accounts payable, meaning unpaid supplier bills.
Under the accrual approach used this week, earned revenue and incurred expenses can precede payment. Profit describes financial performance for the period; cash movement shows receipts and payments. The income statement and cash flow statement serve these different purposes. Source: SEC.
Reconcile the difference: $1,800 profit − $3,500 increase in receivables + $700 increase in payables = −$1,000 cash change. Uncollected revenue raises profit without adding cash yet. Unpaid expenses reduce profit before cash leaves.
The reconciliation excludes other differences, such as equipment purchases or borrowing. October collection of September invoices reduces receivables without earning the revenue again.
Capacity and customer promises
Scheduling permits 14 workshops; trainers permit 16. The lower capacity limits completion to 14, leaving room for 14 − 12 = two additional workshops.
Accepting all four without changing capacity would leave two beyond the current delivery limit. Customers could receive delayed training or a revised promise. Confirm actual scheduling effort and trainer availability before committing even to the two additional sessions.
Scheduling initially limited Cedar to 16 visits. The coordinator raised that capacity, allowing 20 completed visits, at which point technician hours became the constraint. Advertising only increased requests.
Cash and authority
Summit needs $3,000 + $700 = $3,700 before collections arrive, but has $3,000. The shortfall is $700. Paying for advertising first would leave nothing for the supplier bill.
The owner must approve the $3,000 advertising commitment. Approval does not create the missing cash. The manager should reserve the $700 payment and investigate the timing of other obligations before proposing spending.
The supplier wants timely payment; the owner wants sustainable profit and enough cash to operate. Customers want reliable workshop dates, while employees need workable schedules.
A reasonable recommendation is to accept at most two additional workshops after confirming capacity and payment needs, and defer the proposed advertising. Check collection dates and whether coordinator capacity can be increased before seeking more demand.
We cannot calculate October's additional profit from September's total expenses alone. Some costs might change with more workshops and others might stay fixed. Obtain that breakdown before deciding whether the extra work is financially attractive.
Applying this review
Correct one gap in your notes. Your business map, calculations, and recommendation form the week's one-page deliverable.
Next: Markets, industries, and the customer's alternatives. We will define competition from the customer's perspective.
Sources
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