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How the numbers work.
Four lines of arithmetic. No averages from other businesses, no industry guesses: only the numbers you type.
Cost of one sale = the dollar costs of one sale + the price × the percent costs (card fees, royalties)
Each sale leaves = the average sale − the cost of one sale
Break-even = the monthly bills ÷ what each sale leaves, rounded up to a whole sale
Margin of safety = (your expected sales − break-even) ÷ your expected sales
The example, worked through
The coffee cart on the home page is made up. Its monthly bills:
| Space and permit | $900.00 |
|---|---|
| Insurance | $110.00 |
| Phone and card reader plan | $60.00 |
| Loan payment | $320.00 |
| Your own pay | $2,500.00 |
| Monthly bills | $3,890.00 |
One cup sells for $6.50. Beans, milk, cup and lid cost $1.45, and the card fee is 2.9% of $6.50, which is $0.19 after rounding to the cent. So one sale costs $1.64 and leaves $4.86.
$3,890.00 ÷ $4.86 = 800.41, rounded up: 801 sales a month. Open 26 days a month, that is 30.8 a day, so about 31 (rounded up again).
The owner guesses 1,100 sales a month once things settle. That is 299 sales above break-even: a margin of safety of 27.18%, and $1,456.00 a month left over after the bills (and after the owner's own pay, which is one of the bills).
Why your own pay is a bill
If the business only breaks even after you work for nothing, it has not broken even. Put the pay you need on its own line in the monthly bills. The calculator will then say how many sales it takes to cover the business and you.
The first year
New businesses rarely open at full speed. A Desk plan lets you say how strong the first month is (as a percent of your expected sales) and how many months it takes to get there; sales rise in a straight line between the two. Each month's profit or loss is added to the cash you start with, after opening costs. The plan shows the lowest point, the first month in the black and, if it happens, the month the cash would run out. Those are the numbers to look at before you sign anything.
What it does not do
- It does not include income tax, loan principal timing, inventory you buy ahead, or seasons, unless you put them in as bills.
- It does not know what a typical business like yours sells. Your guess is your guess; test it against what you see.
- It is arithmetic, not tax, legal or accounting advice.