Math is a business owner’s best friend. Adding, subtracting, multiplying… there really is no way to get around it. Fancy algorhythms are not necessary skills. However, some simple common equations will help you figure out if your business is a viable option to make money before you invest the money and time into the venture.

The most important equation you will ever make is a breakeven analysis. Add up all your expenses for the entire year. Make sure to include insurance, utilities, advertising, rent, employee wages, supplies, licenses and a little extra to cover possible repairs or other unexpected expenses for the year. These are set costs that don’t really change. You will need to make at least this amount of money a year to breakeven. To get accurate estimates for everything call up the local utility companies for averages for a location you like and an insurance company. They love to help you because you may use them later as a customer. Divide your total by 365 because that would be your daily goal amount to make every day. If you don’t plan on being open every day then make a weekly goal. Divide your total by 52 if this is the case.

Everyone makes a product whether is a counseling session or a popsicle in business. Add up all the costs associated with each specific product you plan to have. If it is a counseling session, figure out how many sessions you can schedule realistically during the week. It is better to guess on the very low side to be safe. At first this will probably be your normal amount. Take your weekly set costs amount and divide by the number of sessions you plan to have. This number will give you what you need to charge for each session to breakeven for the week. Anything added to this would be profit. If to breakeven you have to charge more than your competitors without adding any extra value to your product, more than likely you will not be a success.

Next add a 3 year cash flow analysis for your plan. If you work in an industry where it more seasonal this is especially important. Anything past 3 years is really hard to estimate. For 36 months show what your monthly expenses and income would be. If your electric is more expensive in the summer or winter show that. If your busiest time of the year is around the holidays show that. Include a brief description of why the expenses or income is different during that time of year. Put in when and how much you would take in owner withdrawals. At the end of your accounting period show your estimated taxes paid also. Anything left over would carry over as cash for the business in the next month. It is very good to have at least 6 months of operating expenses always saved in case of emergency.

If you are going after a formal loan, add a liabilities and assets chart over the next 3 years. Show your gross margin, debt ratio and other miscellaneous ratios to prove that you would have a healthy operating budget and profit margin before taxes. There are excellent examples of these charts at score.org and bplans.com. Bplans.com had industry specific plans too! While writing my own plan, I had to Google alot of the terms but it was worth it. If a bank loan officer asks a specific question, you will be able to answer intelligently.

Next week check back for Competitor Analysis the second most important part of your business plan!