calculating break even

[rgjujitsu]

Working on figuring out my break even, do you put in rent and manager salary? Any tips

 

[GotRocks]

You figure your fixed costs first, (rent, insurance, licensing, garbage sewer, water) is your manager on salary? That would be a fixed cost then too.

Then figure your variables (labor cost, supplies, chemicals) The trick is estimating you labor costs, it may take a month of operating to get your Break-even figured out.
I went on the high end of labor and figured 25% for an estimate, I typically see between 12%-18%, but I work many hours which helps. Try to keep combined food/labor costs under 55% under 50% is even better.

Don’t plan on drawing a salary for yourself for the first 18 months, you may be able to, but don’t count on it.

good luck, you will soon realize that projecting things like this before opening borders on alchemy

 

[rgjujitsu]

No we’ve been open for several months already but accountant doesn’t things like rent or my salary should be in there because they are there whether we open the doors or not.

 

[Daddio]

No we’ve been open for several months already but accountant doesn’t things like rent or my salary should be in there because they are there whether we open the doors or not.

To me it sounds like you need a new accountant. From my college basic accounting course: the break even point is a calculation of the sales required in order to cover ALL fixed and variable costs where cost and income are equal and there is neither profit nor loss. I might concede on your salary but not the rent.

 

[bodegahwy]

Yup… time for a new accountant.

 

[Smokin]

Breakeven point is the level of sales where profit is ZERO. Rent is a FIXED cost and should be included. If you are paying yourself a salary that is part of the VARIABLE cost of labor and should be figured in. If you would have to hire someone to do what you are doing you would figure that cost in would you not? If you are really wanting to get a truthful analyses of your true breakeven point then you must be honest in your calculations. If your gross sales are $300,000 and without including rent and your salary your total expenses come to $250,000 you are thinking you have $50,000 profit and all is good. Lets say you have been paying yourself $50,000 a year so the actual PROFIT is now ZERO. Oops, now you figure in the annual rent of $20,000 a year and now you are in the hole $20,000 and you have not reached a breakeven point and are losing money.

If I were an investor in your store with a 10% stake and my return is based on the way your accountant wants you to figure breakeven I am getting $5,000 of that $50,000 profit.

FIRE YOUR ACCOUNTANT before he puts you out of business.

 

[jokergerm]

Scott, did you get my reply to your email?

 

[rgjujitsu]

I did thanks. He is good guy, accountant for large trading firm I used to work for, never done restaurant before. His thought process is that we have rent and salary whether we open or not.

 

[bodegahwy]

If you are calculating the break-even for incremental sales being open on a day you are normally closed that would be the case… In other words, if you were open 6 days a week and trying to figure out what the break even number would be for adding the 7th day you would leave out fixed costs like rent as that is already paid. You would also leave out other fixed costs like phone, insurance, some utilities etc etc…

In general, though, a break-even analysis for a business has to include all costs.

 

[FiresidePizzeria]

Working on figuring out my break even, do you put in rent and manager salary? Any tips

I have gone from owning my own shop and being a General Manager to going to school currently for accounting. As everyone has said, your rent is a fixed cost and so is your salary manager. This is all stuff that any accountant should know. You need to move on to a new accountant. Another idea is to get set up on Quickbooks or something similar. If you need any help or have questions, you can pm me.

Good Luck!!

 

[rgjujitsu]

I should have explained more thoroughly, it is to analyze whether it makes sense to close for a day during our slow season.

If you are calculating the break-even for incremental sales being open on a day you are normally closed that would be the case… In other words, if you were open 6 days a week and trying to figure out what the break even number would be for adding the 7th day you would leave out fixed costs like rent as that is already paid. You would also leave out other fixed costs like phone, insurance, some utilities etc etc…

In general, though, a break-even analysis for a business has to include all costs.

 

[bodegahwy]

I should have explained more thoroughly, it is to analyze whether it makes sense to close for a day during our slow season.

In that case your accountant is not nuts. Here are the considerations that I would suggest including some in addition to the raw numbers when figuring the value of incremental sales:

A. First, do not use your labor percentage for labor. Figure out the actual labor for a hypothetical work schedule for that day and calculate that cost. (If you are already working a full schedule and would be paying someone to cover either those hours in your place or other hours during the week as a result of you working on that day, you need to count those hours too)
B. Do use your overall food cost % but at the high end of the range. Food cost is not efficient when you are slow. For example, if your costs run between 29% and 33% through the year, use the 33%.
C. Add a few bucks for incremental utilities.
D. Add delivery costs etc and call it good.

1. Will that reduce the number of hours available to your employees to the point that risk losing someone you do not wish to lose due to not having enough hours for them?
2. Customers form habits. If you give them a reason to form a new habit you may not get them back.

In my opinion, consistency of hours has a value. I would rather run at break even or a slight loss than risk having to rehire and train or give regular customers a reason to try other places.