2 years ago, you launched a restaurant which generated turnover of 𝟮𝟬𝟬𝗠, the 1st year, and 𝟮𝟮𝟬𝗠, the 2nd year.
👉🏿To make the 𝟮𝟬𝟬𝗠 of the 1st year, you spent 𝟭𝟱𝟬𝗠 to purchase flour, ingredients, consumables, etc still called cost of sales. And 𝟲𝟬𝗠 in rent, salaries, etc still called operational expenses.
So your situation shows 𝟮𝟬𝟬-𝟭𝟱𝟬-𝟲𝟬= -𝟭𝟬𝗠.
You said to yourself “damn, a loss? 😢”. Yet the customers come, the meals appreciated. But what is it?
👉🏿 OK, for the 2nd year, you rolled up your sleeves and made 𝟮𝟮𝟬𝗠 in turnover. In terms of ingredient expenses, etc. you were careful, 𝟭𝟲𝟱𝗠. You kept the rent and salary charges at 60M.
At the end, your 𝟮𝟮𝟬-𝟭𝟲𝟱-𝟲𝟬 = -𝟱𝗠. Another loss 😭.
There, your motivation is affected. 2 successive losses. And the analysis come from everywhere. For you, successive losses at the beginning means you have to close the business, it is not profitable.
⚠️ IN FACT, THERE’S SOMETHING YOU DON’T KNOW.
Let’s go step by step 👇🏿
👉🏿 Take your expenses for consumables, ingredients, and divide them by the turnover: 𝟭𝟱𝟬𝗠/𝟮𝟬𝟬𝗠 and 𝟭𝟲𝟱𝗠/𝟮𝟮𝟬𝗠 = 𝟳𝟱%.
These are variable expenses and they represent 𝟳𝟱% of turnover.
👉🏿 Then calculate your Margins by removing your variable expenses from your turnover:
200M – 150M = 𝟱𝟬𝗠 in year 1, and
220M – 165M = 𝟱𝟱𝗠 in year 2.
👉🏿 By dividing these margins by the turnover, we have 𝟱𝟬/𝟮𝟬𝟬 =𝟮𝟱% and 𝟱𝟱/𝟮𝟮𝟬=𝟮𝟱%.
This indicator is the Margin rate that you apply on variable expenses. So, your variable expenses take 75% of your income and leave you 25% in margins
👉🏿 The 𝟲𝟬𝗠 that you pay for rent, licenses, salaries, etc., and which have remained stable are your fixed expenses.
Divide these 𝟲𝟬𝗠 by your margin rate of 𝟮𝟱%, you have 𝟲𝟬𝗠/𝟬,𝟮𝟱 = 𝟮𝟰𝟬𝗠
👉🏿 Consider that 𝟮𝟰𝟬𝗠 is a turnover and calculate the result you would have had.
- your variable expenses would be 𝟭𝟴𝟬𝗠 (75% of 240M)
- and fixed expenses 60M
- therefore result: 𝟮𝟰𝟬 – 𝟭𝟴𝟬 – 𝟲𝟬 = 𝟬
LESSON: You see that depending on the structure of your activity, it is from turnover that you can verify the profitability of your business, reason why it is the most important tax base.
This is your PROFITABILITYTHRESHOLD, i.e. the target turnover from which you will no longer make a loss or break even point (BEP). Above this turnover, you become profitable!
In other words, with your 𝟮𝟬𝟬𝗠 in year 1 or your 𝟮𝟮𝟬𝗠 in year 2, you were still below your break-even point.
And since you didn’t know, you blamed the expenses, you thought the business was bad, etc. And you closed.
A business is not always profitable in the first three years or infancy stage. You need to know your Threshold_of_Profitability. This is an important aspect as knowledge of turnover to attain break even point is an important indicator for business survival as well as profitability.
Hence, focus on a Roadmap to engage all production resources and sales teams to operate at their maximal potential.
So ⚠️: #financial_ignorance can kill business for nothing!
Contact us for any assistance; consulting@bridgectm.com
English 
French