Monthly Operating Cost Question

Business By LindaF144a Updated 21 Feb 2011 , 12:20am by LindaF144a

LindaF144a Posted 19 Feb 2011 , 3:59pm
post #1 of 13

I have a question I hope I can ask without everybody having to give out personal information.

We have done a thorough business plan, but still have one more question. Is $7,800 a month too high of operation cost? This is for rent, triple net taxes, common area fees, insurance, payroll, etc. This is are big expenses and I'm sure that I have forgotten to write down an example or two here because I don't have my BP in front of me right now like energy costs.

So please, no responses about what I have forgotten. Believe me it is in there.

But my DH is getting a little intimidated by the figure and I do not have enough experience to know if this is normal for this field. So I told him I would ask the experts here.

This is for a store front area, so excluding Jason, who does not have a store front - Is this normal operation expenses, or do I need to revisit things and get that number lower.

The site we have in mind is in a suburb of a mid size city, population for my town is about $60,000. The entire county is something like 1M. Our economy here is strong, one of the few places not hit by the housing turndown (mainly because we are so conservative in this area). This for a 1,700 square foot place on a busy street. I drive it everyday myself. It is in the heart of my town. It would not be a sit down, but walk in and take out. There is no other local bakery/cakery within this town, except for the local grocer.

But all in all, we are trying to get a handle on what to expect. The business plan says this will work, and we would probably not balk at this number if we had prior experience and knew that this was the norm.

It is a number perception thing I think, but I need to know if it is that or if it is too high. I told my DH he deals with millions of dollars every day in his day job (seriously, he has something like a $100M budget he has to control), but that is not his own money! Now that we are talking our own money, he is in a bit of a panic. And he almost does not believe the numbers of what would come in and I was conservative in that area.

I'll stop rambling......

12 replies
jason_kraft Posted 19 Feb 2011 , 5:57pm
post #2 of 13

If you already have a property in mind you should be able to get actual figures for a lot of the expenses, or at least estimates, as well as comps from nearby properties. Payroll will be dependent on how many people you end up hiring. Will you also have financing costs from the initial build out?

I can't speak to whether or not your operating costs are too high in absolute terms, that's something you need to answer on your own based on your anticipated monthly profits.

indydebi Posted 19 Feb 2011 , 7:38pm
post #3 of 13

I had a storefront and while I can't recall the exact number off of the top of my head, I do know that I had to clear (CLEAR!) over $5000 a month to meet the overhead. So your number sounds in line.

now you have a little insight on why conversations with those who have gone the legal path vs. those who choose not to go the legal path can get a little heated. icon_biggrin.gif That's quite an investment and responsibility, isn't it? thumbs_up.gif

CWR41 Posted 19 Feb 2011 , 8:34pm
post #4 of 13
Quote:
Originally Posted by LindaF144a

Is $7,800 a month too high of operation cost?

And he almost does not believe the numbers of what would come in and I was conservative in that area.




It is what it is (based on YOUR plan of exactly how you predict that you'll operate), so I don't believe that it's too high since you've done the work to plug in all of the numbers for your type of business. There is no "normal" for this field... it all depends on how big or small you want to make it, depending on what's feasible for your market. (Sounds like you've already got it figured out--good for you, the hardest part of your BP is done!)

As a fun exercise for the both of you, I'd recommend cutting all of your conservative production projections by 75% (which will cut your operating costs by approximately 50%) and see if the more manageable operating cost is still profitable with only 25% of the anticipated volume. This might be exactly what your DH wants to view to accommodate for the unforeseen.

jason_kraft Posted 19 Feb 2011 , 8:38pm
post #5 of 13
Quote:
Originally Posted by CWR41

As a fun exercise for the both of you, I'd recommend cutting all of your conservative production projections by 75% (which will cut your operating costs by approximately 50%) and see if the more manageable operating cost is still profitable with only 25% of the anticipated volume.



Depends on how much of the operating cost is variable vs. fixed. The big ticket items OP mentioned like rent, triple net taxes, common area fees, and insurance are all fixed costs, and payroll is partially fixed due to minimum staffing requirements to keep the shop open.

Corrie76 Posted 19 Feb 2011 , 8:44pm
post #6 of 13

I just rounded your figure up to 8000.00 per month in operating costs and divided by 30 to see what your daily sales should be...it comes down to 266.00 per day in sales to make it work. Depending on what you are selling, that seems very doable to me. I used to work in a grocery store bakery and our daily sales were around 500.00 mon-thurs and about 1000.00/day on the weekends ... my SIL works at a smaller custom order bakery/tea house and she says their daily sales totals are about the same too. I think your costs seem reasonable and hopefully will work out for you, best of luck!

jason_kraft Posted 19 Feb 2011 , 9:07pm
post #7 of 13
Quote:
Originally Posted by MadameRaz

I just rounded your figure up to 8000.00 per month in operating costs and divided by 30 to see what your daily sales should be...it comes down to 266.00 per day in sales to make it work.



OP would need $266/day in profits, not gross sales. If the profit margin is 20%, that works out to ~$1300/day in gross sales.

CWR41 Posted 19 Feb 2011 , 9:08pm
post #8 of 13
Quote:
Originally Posted by jason_kraft

Depends on how much of the operating cost is variable vs. fixed. The big ticket items OP mentioned like rent, triple net taxes, common area fees, and insurance are all fixed costs, and payroll is partially fixed due to minimum staffing requirements to keep the shop open.




Exactly, which is why operating expenses aren't automatically cut by 75% too when projections are cut.

Variables might include advertising, bank charges, commissions, credit card fees, delivery expenses, maintenance, office expenses, operating supplies, professional fees, wages, and payroll taxes, among many other variables depending on how you wish to operate.

ninjacaker Posted 19 Feb 2011 , 9:08pm
post #9 of 13
Quote:
Originally Posted by jason_kraft

Quote:
Originally Posted by CWR41

As a fun exercise for the both of you, I'd recommend cutting all of your conservative production projections by 75% (which will cut your operating costs by approximately 50%) and see if the more manageable operating cost is still profitable with only 25% of the anticipated volume.


Depends on how much of the operating cost is variable vs. fixed. The big ticket items OP mentioned like rent, triple net taxes, common area fees, and insurance are all fixed costs, and payroll is partially fixed due to minimum staffing requirements to keep the shop open.




FACT: I am faster than 80% of all snakes.

Corrie76 Posted 20 Feb 2011 , 1:35am
post #10 of 13
Quote:
Originally Posted by jason_kraft

Quote:
Originally Posted by MadameRaz

I just rounded your figure up to 8000.00 per month in operating costs and divided by 30 to see what your daily sales should be...it comes down to 266.00 per day in sales to make it work.


OP would need $266/day in profits, not gross sales. If the profit margin is 20%, that works out to ~$1300/day in gross sales.



yes, but the OP stated that the 7800.00 covers all costs of operation. The 266.00/day would keep the bakery running, wages paid, bills paid etc..etc... The OP is basically wanting to know if she can make a go of this and will it work. If this 7800.00 is including her own wages than I would consider the 266.00/day figure something that will meet the bare requirements. Now if my figure is barely met every day, than the business can stay up and running and everyone will get a paycheck, taxes paid, supplies bought .... but you are absolutely correct in that there would be no profit, no growth, no raises and a migraine if something unexpected came up.
The 1300.00/day figure gives the bakery an income of 39,000.00 per month and subtract the 8000.00 of operating costs and that's 31,000.00 profit per month, now that would totally rock my world! but I don't think that is a reasonable daily sales goal for a bakery in a mid-sized area that the OP lives in.

costumeczar Posted 20 Feb 2011 , 1:59am
post #11 of 13
Quote:
Originally Posted by ninjacaker

Quote:
Originally Posted by jason_kraft

Quote:
Originally Posted by CWR41

As a fun exercise for the both of you, I'd recommend cutting all of your conservative production projections by 75% (which will cut your operating costs by approximately 50%) and see if the more manageable operating cost is still profitable with only 25% of the anticipated volume.


Depends on how much of the operating cost is variable vs. fixed. The big ticket items OP mentioned like rent, triple net taxes, common area fees, and insurance are all fixed costs, and payroll is partially fixed due to minimum staffing requirements to keep the shop open.



FACT: I am faster than 80% of all snakes.




But how can you tell if the one chasing you is one of the other 20% or not until it's too late? icon_wink.gif

LindaF144a Posted 21 Feb 2011 , 12:19am
post #12 of 13

Thank you everyone who took the time to help us.

My husband and I read all these comments and feel a lot better with our numbers now. Hopefully this is not the end of the conversation, because I am sure other people are reading this also.

Since I posted this we also did a thorough search for real estate leases in our area. We now feel that we are in line with what is the norm here. We still have a long way to go, but this helps.

LindaF144a Posted 21 Feb 2011 , 12:20am
post #13 of 13

duplicate post, somehow.

Sorry.

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