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•  RULE #1: TALK TO A GOOD CPA FIRST

  1. You don't need a lawyer yet, unless you did not

  understand rule #1.

  2. You may need a lawyer later if you didn't understand rule #1.

(GENERIC LESSON)

    Your friends and family have told you, "You make the best

hamburger in the world. You should go in to business" But; How many

hamburgers must be sold just to pay the rent.

    The X-axis going up shows fixed costs of the business. These

costs include Rent, Utilities, Insurance, Telephones, and many other monthly

payments that must be made even if you don't sell a single hamburger.

    The y-axis shows the variable costs or opposite of FIXED,

controllable costs. You can control food cost by the price you sell the

hamburger as well as the price you choose to pay for the raw materials

(Ground Chuck vs Ground Sirloin). Included in this equation is your cost of

Labor, or how many people are working at a given time and how much each is

paid. Don't forget Payroll Taxes must be included here as well.


    The Diagonal ( ascending ) line is the Gross Profit line

based on Sales Volume. This Line is ascending diagonally because the

variable costs are subtracted from the sale. Example: Hamburger & Bun $1.

plus Labor $1. total cost $2. Sale $3. Gross Profit $1. The diagonal line is

this $1 of gross profit needed to pay the fixed costs of rent and others.

    The Question asked above is answered by point "Z" this is the

break even point. This is how many hamburgers must be sold just to pay the

monthly bills and the supplies and payroll. Any amount of sales below "Z" is

a loss of the business. Any amount in excess of "Z" is profit. Notice the

diagonal line accelerates quickly. If you do it right, If you do make the

best hamburger, and you do have the right location and other factors, You

can make a good living. If you don't do it right or you have a terrible

location or any other number of other detrimental factors, You could loose

everything or become a slave to the business hovering at or near the break

even point.