Do You Know How Much It Costs to Run Your Business Each Day?

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KNOW YOUR NUMBERS • PRICE WITH CONFIDENCE • PLAN FOR PROFIT

A practical guide for Australian small-business owners — Allomes Accounting, Newcastle & Lake Macquarie.

Sales are only one part of the picture. To make informed pricing and growth decisions, business owners need to know what it costs to operate, how much each sale contributes towards overheads, and how much revenue is needed to make a profit.

AT A GLANCE

Daily overheads = monthly fixed costs ÷ trading days.

Break-even sales = fixed costs ÷ contribution margin.

Sales target = (fixed costs + desired profit) ÷ contribution margin.

1. Identify your fixed operating costs

Start with costs that generally continue whether you make one sale or one hundred: rent, insurance, accounting and bookkeeping, software subscriptions, telephone and internet, equipment leases and other recurring overheads. Include regular wages and employer superannuation where they are fixed commitments. Avoid counting the same cost twice.

2. Separate variable costs

Variable costs rise with sales or production. Examples include stock, materials, merchant fees, commissions and direct labour that varies with demand. Rather than treating all expenses as fixed, estimate the percentage of sales consumed by variable costs. This is essential for calculating break-even sales.

3. Calculate the daily overhead cost

Add up monthly fixed operating costs, then divide by the number of days the business actually trades during the month. For example, $12,000 in monthly fixed costs divided by 20 trading days equals $600 per trading day. This is the daily fixed overhead burden, not necessarily the sales needed to break even.

4. Work out break-even sales

Your contribution margin is the percentage of sales left after variable costs. If variable costs are 40% of sales, your contribution margin is 60%. In our example, $12,000 ÷ 60% = $20,000 monthly break-even sales, or $1,000 per trading day over 20 days.

5. Add a realistic profit target

Breaking even is not the same as achieving an adequate return. If the business wants $3,000 operating profit per month before tax, the required monthly sales in this example become ($12,000 + $3,000) ÷ 60% = $25,000, or $1,250 per trading day.

6. Remember that cash flow is different

Loan principal repayments, GST payments, tax instalments, stock purchases and customer payment timing may create cash requirements that differ from accounting profit. Your cash-flow forecast should separately account for these items. GST-inclusive and GST-exclusive figures must not be mixed.

Try the daily business cost calculator

Use the companion Allomes Accounting calculator to enter your fixed overheads, trading days, estimated variable-cost percentage and desired monthly profit. It estimates daily overheads, break-even sales and your daily sales target. Figures are indicative and should be reviewed against your actual accounts.

Build a stronger business with better numbers

Review the results against your profit and loss, sales records and cash-flow forecast each month. Allomes Accounting works with Newcastle and Lake Macquarie businesses to turn financial information into practical decisions.

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