What’s it cost to break even, or better yet. . . make a a profit?

My practice is in a very small town, where sadly businesses open and close. A LOT of businesses open and close. I have seen at least 8 different businesses in the space I am going to reference since moving here 15 years ago. Yes 8. 3 of the businesses bakeries – which I would LOVE to see open and flourishing.

The space is great, There was a bakery there years ago I truly loved. Banter will usually ensue over topics like this. What made me decide to go ‘off topic’ for my own blog – and I will reference my own business in this as well – was the sadness in seeing so many places come and go, wanting to see a bakery in that space, and knowing bakers who I would love to see do just that.

I’ll start with my own personal business, just to cite examples. In 2014, my business cost me $55K to run it. Let me add that my ‘rent’ is a SMALL portion because I own the building my practice is located in, AND I don’t have a mortgage on it. So take away that and it ups the expenses significantly – probably another $3K a month if we use for example the space I will reference for the purpose of the local bakery. So if we make some adjustments, if I was renting, my expenses would increase to $87K a year. It almost seems insane to go into business. I am also still paying off the cost of my $250K education to become an Acupuncturist so that is factored in as well. 

But lets break things down for other purposes and go back to our example of opening a bakery in the local place in town.

I had for years heard rumors of the cost of renting that space. I was able to check it out on line and yes, the rent on the space sounds good $1.69 a square foot per month. . .however usually you break things down into cost per square foot per month. So let’s recalculate and suddenly the space is $20 a square foot. Some mall spaces do not cost that much and let’s face it, the mall gets a LOT more traffic than my small town. Let us pretend for argument sake this isn’t high. Rent is $2950 a month. PLUS utilities. . . And we need to give our landlord a security deposit don’t we? So let’s say a month and a half security deposit. We’ve walked in the door and spent $7375 without even opening the door!

I am using minimal electricity at my office, heat may be high, but I am just heating treatment rooms – I spend an average of $3600 a year for gas and electric. But we are talking about a bakery, where your oven has to go a LOT to bake all of your goods. So let’s just double that to be fair.

Now our expenses are $3550 a month. Still you may be thinking, a store in a small town could do this. We aren’t finished with expenses. We are right now still just arguing the cost of running a business.

Okay, I will admit I get lazy so to take a shortcut, I searched the web and I am going to list what Erin McKenna of BabyCakes NYC said her start up expenses were, minus the security deposit because much to my surprise even for NY – her security deposit was only $4000 and deducting ‘construction costs’ because if you are local you know this has been a bakery and there is equipment there. So walking in the door we will say is going to cost you about $13K. McKenna also listed her monthly expenses and we will have to adjust this as well – remember our local small town bakery is asking $2950 a month PLUS utilities. McKenna has that her rent AND utilities are $2800 a month. McKenna has $11643 in monthly expenses, we are again going to adjust this and correct for how much higher rent and utilities are in this small town. We are now at $12193 a month. . .

What does this mean – let me make some re-adjustments.

Factoring the monthly expenses plus the start up costs brings our first years expenses to. . .$159,316. To run a BAKERY.  . . in a small town. . .AND ONLY BREAK EVEN!!!!!! So it costs FAR more to run a Bakery than a medical practice.

So now let me give you some more food for thought – how far will someone go to pick up a pastry – some will go far, I’ve known people to drive hours for pastries because they have dietary restrictions. But are you building a niche or a ‘local’ place.

So let’s say you are open 52 weeks a year. . .You now need to bring in $3064 to break even. But really don’t you want to be able to live? I have a budget for my life – I am certain our mystery baker doesn’t plan on living in the kitchen of our theoretical bakery. So now let’s be honest and at least double that –  maybe it doesn’t it cost me $3000 a week to live to live but I have 3 children so it’s close – we aren’t even accounting for paying taxes. Now we will hypothetically say the income of our fictitious bakery needs to be $6128 per week in order to break even and actually live. So our small town bakery needs to bring in almost $320K a YEAR.

Our next step is to break it down smaller. Let’s say we want to close 1 day a week. Now we need to bring in $1021 per day to make a living. We can say 680 cups of coffee at $1.50/ cup might do that. Let’s say ½ that so that we can be realistic – 680 customers a day. . . in Allentown? Okay so we need to sell 340 cups of coffee a day. I typically loved Danishes. Thus will use my favorite as an example. At the bakery I treat myself to a Danish it costs me $2.25 per Danish. So we additionally need to sell at least 225 pastries a day at an average of $2.25 per pastry.  I know we could sell cakes as well. But I am trying to get to the basics. We are STILL looking at needing to bring 340 people buying coffee into our bakery and 225 of those also getting a pastry.

So it could work the population of Allentown in 2013 was 1815 people and Upper Freehold was 4282. So really it COULD work IF some of the 6097 local residents really did shop locally. The problem is, I think the same 50 to 100 people shop our local Main Street.

Part of me wants to invest in making something like this happen. Most business don’t make a profit their first year. Back in 1993 when I started my business, I didn’t break even and when I moved my practice from Woodbridge to Allentown in 2004, I broke even the first year, but I had already had the experience to know what to do to get to that point and that was my goal JUST to minimally break even since I was relocating and completing my second Bachelor’s degree and Master’s degree.

Will we ever see a thriving business? Who knows, I just feel that after putting words to word document - it doesn't seem the odds are stacked in our small business' favor.