Most people who own businesses judge the success or not of their business by the amount of money in the bank at the end of the month.

We should of course be happy with that but there is more. Today let’s look at a simple one person business.

If we are looking at the numbers there are four stages to the process

  1. The break even
  2. The margin
  3. The overheads
  4. The unit price

The break-even is all about the most important person. You the owner.

The question, when writing a business plan is not how much do I think i can sell but rather how much do I the business owner, need to earn in order to have the quality of life I want for me and for my family.

In order to know that we actually need to sit down and work out: How much does it cost me to live for a year?  Eveything: including Food, heat, electricity, Christmas and so on.  That number is the key.  So let us for the sake of an example choose €36,000. That leads to question 2

What is the margin?

If I am a service business then there is no cost of goods sold and otherwise it is 36,000 plus whatever the actual cost of goods sold is.

Next we add on the estimate of overheads

There is a can of worms as to what is tax allowable in expenses but in broad brush strokes: If it is solely for the benefit of the business then it is allowable.

It’s probably easier to mention things that are generally not allowed.  Food (unless you are 50K from home)

Clothes - except for job specific clothes that you couldn’t wear on a night out – so a suit is not allowable but a high viz jacket hard hat and boots are.

If you work from home then Some electricity and heat, broadband landline call, mobile phone are all okay and if you pay rent then an appropriate portion of the rent relative to how much of the space you use and how often. Don’t consider charging rent if you own your home. It’s not a can of worms they are definitely snakes.

On average this totals up to between 8 and 12,000 a year for a one person show.  So let’s be conservative and say 9000 a year

So we now know that we need 45K a year to break even.

If we again go conservative and set our target at earning during only 45 weeks (if you earn in 50 it’s a bonus) then our target is 1000 a week

If our unit price is 100 then we need 10 sales a week to break even If the unit price is 2000 it is 2 sales a month

If we set this as our target we are also now talking about registration for VAT if it is a service business because it is obligatory to register once your turnover exceeds 37.5K

The difference in this process is where you start. Most people start with trying to pick a number out of the air to project sales but it’s much clearer and simpler to start with not what you think you can do but with what you MUST do.  Now ask yourself: Is that achievable? If so can I exceed it and by how much? If not what do I need to do to get there? What is stopping me? Do I need to go back to last month’s blog?

I’ve ignored tax in this process to make it simple to grasp the concept but of course you have to provide for that too.   4 simple steps that start with You to Forensic Financial Figures

Leave a comment

Your email address will not be published. Required fields are marked *