The break-even point, or BE, of a restaurant refers to the amount of total revenue needed to cover expenses. The factors that determine BE include the restaurant’s Fixed Costs, or FC, and its Variable Costs, or VC. FC refers to expenses that do not increase or decrease with sales volume, whereas VC encompasses costs that change with sales volume. Knowing the BE point of a restaurant is imperative when calculating financial projections and forecasting profit. You can calculate your restaurant’s BE within any time frame, such as annually, quarterly and weekly.
Determine the restaurant’s FC. FC includes expenses such as property taxes, insurance, lease or mortgage payments and salaries.
Determine the restaurant’s VC. Examples of VC include expenses such as hourly employee wages, advertising, cost of food sold, payroll taxes and bonuses. For instance, if you pay your hourly employees $50,000 per year, spend $10,000 on advertising annually, pay out $20,000 per year on inventory and give away $5,000 each year in bonuses, and have total sales of $100,000 per year, your VC equals 85,000/100,000 or 85 percent.
Enter the FC and VC values in the following formula: BE=FC/(1-VC%). For instance, if your fixed costs total $250,000, and your VC equals 85 percent, your BE equals $1,666,666, or 250,000/(1-.85) = 1,666,666.
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