Reverse Engineer the Financials
Instead of asking how much can I make, ask how much do I need to make? Find the break-even point for certain sales levels and ask, “is this obtainable?”
The break-even formula:
BE = FC / 1 – (VC/Sales)
FC = fixed costs
VC = variable costs
To find these numbers, simply take your first year, projected income statement, identify all of the costs that are variable and all that are fixed (variable costs such as cost of goods sold will fluctuate with sales while fixed costs such as rent will remain relatively static), total them up and plug them into the formula. If you must sell $100,000 worth of pizzas in order to break even, is this reasonable?
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