Archive for February, 2010

Accounting 101: Projecting Sales:

February 2, 2010

Pricing, market, capacity, seasonality – when projecting sales, the breakeven method is the most realistic approach since it forces you to identify what you must sell in order to have enough cash to pay all your bills and pay yourself. This will result in the most realistic sales projection.

Breakeven for Selling Hours [Service Business]

  • 2,080 hours = Total hours in the year
  • (200) hours = hours not available for work [Vacation + holidays + sick]
  • 1,800 hours = Total hours available to sell

Of those available hours, how productive do you think you will be to work in the business vs. working on the business? Generally speaking use 75% in / 25% on

  • 1,275 hours = Total selling hours [1,800 * 75%]

Now you need to determine what your Gross Margin is and what you fixed expenses are and divide that by your Total selling  hours to arrive at your breakeven sales rate – what you need to charge to make this much in sales just to cover your expenses

Then you determine to work more hours, reduce your expenses or raise your hourly rate in order to make a profit: Whatever is most realistic!