How Much Business Do You Need?
     Break-even Sales Analysis: 
     Every business owner should know how much revenue is needed to allow the company to pay all
     business costs and leave the owner a fair profit return.  Profit is determined by the company's
     cost structure and sales volume over the course of one year.
      Cost Structure: Background
      “Fixed” Costs - Business expenses that are independent of the level of sales are classified 
      as “fixed” costs (FC).  It’s important to understand the term “fixed” does not mean the cost 
      can not be changed.  For instance, lease payments (building, equipment, fixtures, etc.) are  
      examples of business costs that must be paid whether the company has a big sales month or 
      a slow one.  The lease holder may hope your business does well but when it comes time to pay the rent, your sales success is 
      of no concern.  Other types of “fixed” costs generally include insurance premiums,  membership fees, repairs & 
      maintenance, loan payments, professional fees, etc.  Salaried employees usually are considered fixed costs.
      “Variable” Costs - Business expenses that change as the level of sales change are known as “variable” costs (VC).  If a 
      company sells and installs carpet and tile, the purchased flooring materials are “variable” costs.  As the company’s sales 
      volume grows, the amount of materials purchased also increases.  Materials purchased tend to be the largest cost category in 
      many businesses representing 30% to 80% (or more) of every sales dollar.  Other examples of “variable” costs include 
      freight costs, sales commissions, supplies (shop, store and office), credit card fees, etc.  Hourly employees often are counted 
      as variable costs. 
      “Semi-Variable” Costs - Many business costs possess both “fixed” and “variable” characteristics.  So how do you know 
      which is which?  One rule of thumb is to imagine ... if the business were closed for 4 or 5 weeks, would a particular cost go 
      away or decrease significantly?  You would still have the rent to pay but you wouldn’t continue the full hourly payroll.  A 
      business closed for 4 weeks would still have telephone costs in the monthly service charge whil long distance charges would 
      fall to zero.  Gas and electric costs may drop substantially during this 4 week period but wouldn’t go completely away.  
      Some advertisements are fixed costs (yellow page ads) while others are variable depending on the volume of sales.  It's okay 
      to estimate how much of a semi-variable cost is “fixed” and how much is "variable".  Always use the best information 
      available.  For example, advertising in your business maybe 30% fixed and 70% variable.  
     For the Next 12 Months …
     1. Estimate Sales - from all business sources - what is your goal?                   $
     2. Net income - this is your reward - what is your goal as a % of sales?
                                                    Income                     Net Income              $0
                     This is why 
                     you're in 
                     business.
     3. Business Costs - Estimate all business costs (cash) for the next 12 months and classify them as  
         "fixed" or "variable".  If a cost contains both fixed and variable charcteristics, allocate the
         total cost appropriately.
                                        Total Costs       Fixed Costs     Variable Costs
     Materials Purchased             $
     Freight charges
     Supplies - Shop / Store
     Payroll
     Payroll Taxes
     Insurance
     Rent: Equipment
     Building Rent / Mortgage
     Utilities
     Telephone / Fax
     Advertising & Promotion
     Vehicle Expense
     Computer / Internet
     Travel & Entertainment
     Repairs & Maintenance
     Office Supplies
     Postage
     Freight-out
     Professional Fees
     Dues & Subscriptions
     Donations
     Bad Debt Expense
     Bank Charges - credit cards
     Taxes (other than sales)
     License & Fees
     Loan Payments
     Other
             Total Expenses                         $0               $0               $0
     Break-even Sales Analysis
     Step 1:                                                               Income                You want to do 
     Variable Costs as a % of Sales                                                              more than just 
                             #DIV/0!                                                             "break-even".
     Step 2:
     Calculate "Break-even Factor"
                             #DIV/0!
                                                                        Profit & Sales Analysis
     Step 3:                                                            Step 1:
     Estimate Break-even Sales Volume                                   Add Profit Goal ($) to Fixed Costs
                             #DIV/0!                                                                               $0 
     PROOF:                                                             Step 2:
     B-E Sales Volume                          #DIV/0!                  Calculate Sales Volume
       less Fixed Costs                             $0                                                         #DIV/0!
                                               #DIV/0!
      less /Variable Costs                     #DIV/0!                  PROOF:
                                               #DIV/0!                  Profit Sales Volume                    #DIV/0!
                                                                              less Fixed Costs                             $0
                                                                                                                     #DIV/0!
                                                                              less /Variable Costs                   #DIV/0!
                                                                                              = Profit Goal          #DIV/0!