The Most Important Part Of Your Business Plan

I’ve read a lot of business plans over the years, and they all look pretty similar. It’s just an exercise you must go through to get a bank loan, like some sort of primitive right of passage. Most of what is in a business plan is just BS. Not all of it of course. It’s a good tool to make you think about all the aspects of the business you are venturing into: what it will look like, what kind of service, what you are going to serve, what your competition is, etc. But when it comes to figuring out if you are going to be profitable or not there is a much better and simpler tool.

I’m talking of course about calculating your break-even. Not a cashflow spreadsheet or a bunch of assumptions. A simple break-even is a number you come up with that say’s YOU ABSOLUTELY HAVE TO DO THIS MUCH IN ORDER TO BREAK EVEN.

To build one of these, you first need to know what it is going to cost you to build your brewery. If you are choosing a warehouse that needs a complete retrofit and are buying all new equipment, you can come up with a decent guesstimate on how much you will need to borrow, which gives you the all important cost item, which is how much you need to pay back to your bank or investors each month.

The other key factor you need to know is how much is the space going to cost each month. Either in rent or mortgage payments. Once you know these two things you can start to build your break-even.

I use a spreadsheet that I am happy to share with you. Basically you are creating a profit and loss statement. But in this case it’s the expenses that are more important than guessing the sales. So forget about sales for now.

Cost of Sales. First you need to figure what your cost of sales are. This is the cost of ingredients you sell. In the spreadsheet it is calculated as a percentage of sales. This percent depends on variables. For example beer cost in a brewpub where the beer is sold over the bar is going to be 12% or less, or .12 cents on every dollar covers the cost of ingredients without labor. As I mentioned last week about food, this cost depends on the type of food you are selling. So in the spreadsheet these will change according to the sales in each of these categories you plug in.

Next comes the big one - Labor. Make a few separate sheets guessing on what your labor costs will run. Maybe even three. One as barebones labor, one in the middle, and one where the business is balls-to-the-wall. Basically, you do this by making yet another spreadsheet. At the top across are the positions, like bartender, wait person, host, bus, dishwasher, cooks and anyone hourly. Down along the side are the days of the month. At the bottom is the total for each column. In each column guess how many hours that employee might work for their shift. A wait person might be 5.5 hours, which includes set up and break down. Cooks are probably 8. Also include a shift manager in this sheet. If you were open 7 days a week lunch and dinner, you could have two salaried managers covering 10 shifts, but would need at least one more manager for the other 4. I prefer 2 managers each covering 2 shifts.

At the bottom across of the spread sheet you plug in your hourly pay. This gets multiplied by the total of that positions hours. Then another cell adds all these costs up. It gets added to whoever is on salary, and I assume that would include the brewer. This will give your your total labor.

Continuing on in the break even are labor taxes. This is just a % of your labor. I plug in 15%, so it changes automatically as labor changes. Then your other expenses. This includes utilities, repairs, supplies, replacement, etc. I call these controllable expenses because these are expenses that can be managed by the managers.

The last expense column is non-controllable, or expenses that are beyond what the managers can control. This includes rent, credit card fees, owners salary, bank loan, accounting fees, etc. Finally you net profit.

Once you have all this done, make up a sheet using your least amount of labor. Also really look at your expenses and guess how little you could spend in each category. Finally, plug in sales into each category (Food, Beer, Wine, Liquor, Beverage, Merchandise) and see how your net profit looks. Keep fiddling down the sales numbers until your net profit is 0. This sales figure is your breakeven. It’s your make or break number. It tells you that no matter what, you have to hit this number. I can’t think of a better motivating tool than this!

So then, ask yourself, “Do I feel reasonably comfortable hitting this number?” If the answer is yes, then you may proceed. If you are not sure, then maybe this location isn’t right for you. Maybe you can change your business model and instead of full service go with bar service to cut back on labor. Maybe your menu is too big.

You see where we are going with this. These are as real numbers as you are going to get without actually being in business. It’s much better than trying to guess how many seats you have and how many pints per hour you need to sell to hit your projections. Personally I think having that make or break number stuck in my head is a much better indicator if this is a good project or not.

This is not a lot of work. Message me and I’ll send you a couple spreadsheets I use that will make it much easier for you. Sharpen your pencil.