Break even analysis

[atm84]

Does anyone know how to complete a break even analysis for an electrician.

I understand that Total Revenue = Total costs

The difficulty is for an electrician total revenue is a mixture of an Hourly rate and Materials sold.

If I base it purely on my hourly rate I only break even after 36 hours a week.

I hope to make a small profit from mark up on materials but as the materials that I sell will be different it's hard to do.

Does anyone have an experience of doing this before. Your helped would be much appreciated.

 

[HandySparks]

What exactly is the purpose of this 'break even analysis'? Why are you doing it?

 

[atm84]

I'm writing a business plan to obtain a loan and they have asked for a break even analysis. I could just base it on hours but then I only make a profit after 36 hours a week, which doesn't look particularly good. I know from experience that I will break even sooner than this but it's just putting it on paper.

 

[Leesparkykent]

Have you looked at the Barclays guide to writing a business plan? Its got lots of useful information.

 

[Kamikaze]

You have the added problem of having to factor the loan into the equation since once you have taken one out, there will be a new break even point.

 

[HandySparks]

How much are you paying yourself per week to arrive at the 36 hour break even figure?

 

[atm84]

£200 a week.

 

[atm84]

Yeah I've already factored the loan in. I think the only way that I can do it is calculate how much I need to invoice per day and then say that can come from labour and profit on materials

 

[HandySparks]

Where are you located and what's the hourly rate you're planning in?

 

[atm84]

You don't need to know that handy sparks. That personal info that I do not want to divulge here. I just asked for help on how to calculate break even when taking into account labour and profit from materials.

 

[Octopus]

£200 a week.

Are you serious? £200 per week for 36 hours?

 

[Octopus]

Where are you located and what's the hourly rate you're planning in?

Two very important questions that do deserve answers, and yes they do!

 

[atm84]

I'm ltd. I pay dividends out of the profits. I have high fixed costs due to wanting to pay the loan off quickly. But that's irrelevant here. Can anyone help how to calculate break even with labour and sales without having to give away too much personal info.

 

[Octopus]

Does anyone know how to complete a break even analysis for an electrician.

I understand that Total Revenue = Total costs

The difficulty is for an electrician total revenue is a mixture of an Hourly rate and Materials sold.

If I base it purely on my hourly rate I only break even after 36 hours a week.

I hope to make a small profit from mark up on materials but as the materials that I sell will be different it's hard to do.

Does anyone have an experience of doing this before. Your helped would be much appreciated.

What do you mean by Total Revenue = Total costs?

 

[atm84]

Two very important questions that do deserve answers, and yes they do!

My location is irrelevant when asking how to calculate break even

 

[atm84]

What do you mean by Total Revenue = Total costs?

Don't worry about it.

 

[Octopus]

I'm ltd. I pay dividends out of the profits. I have high fixed costs due to wanting to pay the loan off quickly. But that's irrelevant here. Can anyone help how to calculate break even with labour and sales without having to give away too much personal info.

Unless you provide actual figures this thread is pretty much meaningless. Do you realise that the changes in the last budget will undermine the tax efficiency of paying yourself dividends?

 

[atm84]

Admin close thread. I'm wasting my time

 

[HandySparks]

...If I base it purely on my hourly rate I only break even after 36 hours a week.

I hope to make a small profit from mark up on materials but as the materials that I sell will be different it's hard to do.

You don't need to know that handy sparks. That personal info that I do not want to divulge here. I just asked for help on how to calculate break even when taking into account labour and profit from materials.

OK, any financial projection of this sort is educated guesswork. So make an estimate of typical materials content in the week's work and calculate your mark up on that level of materials to incorporate into your invoicing amount.

BTW, I wasn't trying to pry. It's just that without the 'big picture', suggesting how to improve the modelling is going to be general rather than specific.

 

[Octopus]

Admin close thread. I'm wasting my time

IMHO this is because you are trying to do sums with important facts not being disclosed.

whether you pay yourself dividends, or however you still need a target income to begin with!

 

[atm84]

What I charge per hour, where I am based is irrelevant and none of your business. I understand how to calculate break even when basis it purely on labour. I understand how to do it based on selling a single product. Electrical contracting is different as you can sell many products as well as charging for labour. This makes calculating break even quite difficult.

 

[7029 dave]

£200 lol

 

[Octopus]

What you charge per hour needs to be derived from your target income before tax, PLUS all your budgeted overheads.

so let's keep this simple,

target income before tax £36k, overheads £6k. Equals £42k per year gross profit.

BUT you don't work 38 hours for 52 weeks so I use, for example 220 days, a year is about 260 week days before bank holidays and days off, so you need to have a target profit based on this.

not sure I can offer more help unless you put more of your cards on the table

 

[newtothis]

My location is irrelevant when asking how to calculate break even

Agreed, have you calculated your costs and categorised them into fixed and variable ?

 

[newtothis]

The op needs to provide Fixed and variable costs these can be ficticious.
the only people who need to know the actual figures are managers/ owners, someone thinking of buying your business or giving you a loan.

 

[atm84]

It's the variable costs that I'm struggling with. How do you ascertain variable costs as so many different materials are fitted. I wouldn't use staff wages as variable either. I would say that was a fixed. If I used sub contractors then that would be a variable cost. What's confusing me is trying to include the revenue and cost of materials.

 

[uksparks]

What do you want the loan for and how much are you looking at borrowing? Just wondering

 

[SJD]

Just make some assumptions eg £2k materials costs per month average, 25% mark up, invoiced at £2.5k per month. Or whatever you think realistic, so long as you can justify the values used. Then include in the calculations along with labour etc

 

[Octopus]

What do you mean be variable costs? For me variable cost is diesel, as if I don't work it could be zero, but if I worked 25 miles away for a month it could be £200 per month.

you have to make a guesstimate based on previous years. I am SE and my overheads come to about £6k per year, and this has been fairly constant for the last 5 years.

 

[newtothis]

break it down, eg staff who are paid regardless of output are fixed others are variable.

Edit: too basic sorry.

 

[atm84]

Just make some assumptions eg £2k materials costs per month average, 25% mark up, invoiced at £2.5k per month. Or whatever you think realistic, so long as you can justify the values used. Then include in the calculations along with labour etc

Thank you. I'll have a go with that.

 

[Octopus]

Thank you. I'll have a go with that.

Materials for resale are not costs or overheads!

 

[atm84]

They are variable costs

 

[uksparks]

I know it's not important at the moment, but I want to know how much he wants to borrow and to spend on what?

 

[Octopus]

They are variable costs

Parts you sell to clients are not business costs. Fuel , insurance , tools , etc are costs or overheads depending on your terminology.

My business plan assumes I buy about £1 k of materials for resale with an average gross margin of about 18 percent so I will make about £2400 per year on this

 

[Hellmooth]

Admin close thread. I'm wasting my time

You've handled this thread well.......

 

[Englishman]

I'm surprised he's had any serious answers whatsoever considering how narky he's been.

 

[HandySparks]

Thank you. I'll have a go with that.

'Materials' are going to be hugely dependent on the sort of business you're running. If you're going to be installing lots of high value equipment, you might make a significant part of your profit on materials. On the other hand, if you're mostly doing EICRs and fault finding, you may make nearly nothing on materials.

 

[Englishman]

I think knowing what you're charging and taking time over quotes is hugely important as well.

 

[atm84]

Parts you sell to clients are not business costs. Fuel , insurance , tools , etc are costs or overheads depending on your terminology.

My business plan assumes I buy about £1 k of materials for resale with an average gross margin of about 18 percent so I will make about £2400 per year on this

Of course they are costs. They are variable. The more business you do, they vary. I've got the info I need so cheers

 

[atm84]

Think you need to check your math Murdoch

 

[Octopus]

Think you need to check your math Murdoch

Why?

to calculate gross margin you divide the sum by (100 minus required GM) total so:

(£1000 / (100 - 18))

£1000/0.82 = £1219

so GM is £1219

so your GM on £1000 materials for resale is £219 per month so

£219 x 12 (to get annual) = £2628


Or calculate mark up

so £1000 * 0.18 = £180

£180 * 12 = £2160

Its important to differentiate between gross margin and mark up, as you can see it has an impact on your profits!

Either way the costs associated with parts you sell/supply to your customers are NOT business overheads - you need to brush up on your terminology IMHO

 

[Diddy]

Too funny lol. OP comes to thread asking for help but not wanting to go into details. Then even when he get's upset and ask's for thread to be closed members STILL go out their way to assist him or at least point him in the right direction...THEN the person asking for help tries to challenge one of the people helping....priceless. I think op should go to someone and pay them to do all this for them...or ask the bank for a loan for a new kitchen or something simple lol.