The numbers: investment, costs and break-even point
There are three numbers you need to know before you open. If you don’t know them, you are not opening a business, you are gambling.
1. Start-up investmentEverything you spend before selling: building work, furniture, machines, deposit, permits, stock and a cushion.
2. Monthly fixed costsWhat you pay whether you sell or not: rent, self-employed fee, electricity, water, internet, insurance, accountant, wages.
3. Break-even pointHow much you need to sell each month not to lose money. Below it you lose; above it you earn.
How to calculate the break-even point
Left per customer = price − cost of materials
Customers per month not to lose = fixed costs ÷ left per customer
Barbershop example: haircut at €15 without VAT, materials €1.20 → €13.80 left
Fixed costs: €2,000 a month → 2,000 ÷ 13.80 = 145 customers a month
Open 22 days → about 7 customers a day just not to lose money.
And that is without your wage.
Customers per month not to lose = fixed costs ÷ left per customer
Barbershop example: haircut at €15 without VAT, materials €1.20 → €13.80 left
Fixed costs: €2,000 a month → 2,000 ÷ 13.80 = 145 customers a month
Open 22 days → about 7 customers a day just not to lose money.
And that is without your wage.
Your wage is a cost too
Many people say “I make €1,500 a month” when that is really what is left after working 60 hours a week. If you want to pay yourself €1,300 a month, add it to the fixed costs and calculate again: in the example, it is already about 11 customers a day.
Watch out for VAT
The prices the final customer pays usually include VAT (21% for hairdressing and most things; 10% for bars and restaurants). That money is not yours: it belongs to the tax office. Do your numbers with the price without VAT.
Try your numbers in the business calculator: it tells you how many customers a day you need and how many months it takes to recover your investment.