Lemonade Stands: Teach Your Kids About a Business
Your soon-to-be third grader and sixth grader are looking for something to do this summer. You want to provide your kids with educational opportunities. How about a lemonade stand? A lemonade stand is a great way to teach your kids about responsibility, money management, and the basics of commerce. Here’s how you do it.
Start by setting a budget. Your kids should choose one day to test market the product (i.e., their lemonade). How long would your kids like to work on this day? (Hint: one or two hours is best.) How many people do they think they will serve in that period of time? How many lemons do your kids think they will need to serve their customers? How much water? How much sugar? How many paper cups? How many rolls of paper towels? How much will all of this cost? What amount of money (aka net profit) would they like to generate to make their work “worth it”? What price do they need to charge per cup of lemonade in order to generate this net profit? Is that price reasonable relative to the market?
Create a bare-bones income statement. Teach your kids how to plug the budget numbers into the spreadsheet.
Create a bare-bones balance sheet. Teach your kids how to estimate the value of “their” existing assets (i.e., pitchers, card tables, etc.) and plug those numbers into the balance sheet. Teach your kids how to record their liability (i.e., the loan from you for their start-up capital) on their balance sheet.
Have your kids assemble their existing materials (i.e., the card table, two folding chairs, various pitchers, large spoons, a large piece of paper, and a large marker). (For the purposes of this article, it is presumed that you already possess these.) Go shopping with your kids to purchase the other materials for the lemonade stand (i.e., lemons, water, sugar, etc., as noted above).
Revisit the income statement. Have your kids put in their “actuals” for those expense line items. Teach them how to perform a budget-to-actuals analysis on their expense line items. Did the lemons cost more than your kids budgeted? Will your kids need to increase the amount customers pay for a cup of lemonade as a result? Will the increased cost of a cup of lemonade price your kids out of the lemonade market?
Revisit the balance sheet. Have your kids add the value of their new inventory to the spreadsheet and reduce their cash asset accordingly.
Put some one-dollar bills and five-dollar bills in a sandwich bag. Put a variety of coins (quarters, nickels, dimes) in another sandwich bag.
Then, have your kids set up and operate their lemonade stand.
When the lemonade stand closes for the day, ensure that your kids clean up, put everything away, and then count the money in the two sandwich bags. Deduct from that amount the value of their start-up capital. The remaining amount is their gross profit.
Deduct from their gross profit the cost of goods sold. The remaining amount is their net profit (this assumes no “wages” paid to your two kids). Have your kids record all these numbers on their financial statements. How does their actual net profit compare to their budgeted net profit? What would they like to do differently to make their lemonade stand more profitable next time?
Should they (or can they) re-pay (in whole or in part) their loan from you? Does that leave them enough money to prepare for their next lemonade stand? What amount of their net profit needs to be saved for the expenses of the next lemonade stand versus what amount can be used for your kids other purposes (i.e., personal savings accounts, recreational activities, etc.)?
The above is a quick overview of Commerce 101 (lemonade-stand-style). By following the above steps, your kids can have fun and can learn about how businesses operate . . . all at the same time!
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