how to predict when a business collects it's initial cost back?!!

[Pharaoh]

hello fastlaners,

I'm opening a restaurant and I needed some funding. the potential investor wanted to know some info like the break even point and also when will the project collect it's initial cost " cost of assets" so after that it'll be all profit.

I've add all the fixed over heads " rent, salaries, etc." to predict the minimum sales to reach the break even point. should I divide the initial cost on a monthly basis and add it to the previous value? I have rented this restaurant for 7 years, should I divide the initial cost on monthly basis for the 7 years? or is there a standard period for businesses to collect it's initial cost back?

I'm sorry, I'm not a business expert so you'll see that I can't explain the situation in the most correct way. if you have any question I'll be ready to answer and more thankful for your help.

 

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[mayana]

How many years will it take you to make back the initial investment? That's how to get one of the numbers you are looking for.

For example, if you spend $100,000, and you make $25,000 a year at your restaurant (hopefully, you'll make more!), then your payback period is 4 years.

The break-even point is different, since it refers to the moment when your costs and expenses are the same. Say, the first several months, you are technically losing money on your restaurant. Then, at a certain point, you make exactly the same amount as you have to spend that month (this would be including debt payments, if any). This is the break-even point. The assumption is that after the break-even point, you will begin to earn a profit.

 

[liquidglass]

I'm sorry I'm not quite clear on what you're looking for due to the variables involved.

But from my understanding of what you said, you're on the right track. I'm assuming they want the break even point as to when you'll become profitable so your operating expenses/assets = revenue.

Cost of assets: monthly rent, equipment, things like this. Your assets are fixed cost projections.

Operating expenses: salaries, electric, food, cost of finding/hiring, taxes, etc. This would include any costs that are variable and are best estimated projections.

If your potential funding source is wanting to know when you would break even then I would suggest that they are wanting to see how long it would be before your sales will = costs of assets + operating expenses. It would be wise in my opinion to make these into separate presentations then join them together to give the best detailed breakdown.

I always say you should overestimate your expenses and underestimate your sales when working on these projections. Make them realistic but not optimistic. Optimistic goals are for your journal.

Little trick/suggestion. Add in a 10-15% misc. category in your estimates. So take what you expect in revenue each month multiply by 15% and make that a line item in your presentation under your operating costs. It gives you the flexibility to be wrong on your estimates without having to cook the other numbers. The worst that can happen is you meet your goals ahead of time and start paying back the loan early.