[CarrieandRay]

Hello:
We are starting a new ice cream shop. We own the equipment and building but are putting a business plan together to take to the bank for a remodeling loan. We have everything completed except the financial section.
We know there is lots of talk in town about us opening and we are constantly being asked when the shop will be up and running. People are interested, but how do we translate that into our projected profits? Do we just come up with some pie in the sky numbers? That can't be, but we don't know how to determine profit potential in a more practical way. Please help us understand how this is done.
Thanks in advance.

[rtw_travel]

Your accountant can help you. But you can do some homework first, and come up with a first cut at a model.

Yes, some of the numbers will be pie in the sky. However, some will be quite accurate. The result is that it will give you a good feel of what drives your business, and how much you will have to sell to make a go of it.

Let's start with expenses.
Come up with a list of how much it will cost to run your business on a monthly basis. There will be fixed costs and variable costs.

For fixed costs: What are your store hours? How many employees & what are their salary & benefits. What is your heat/ power/ water/ phone bills? Annual Municipal taxes/12. Annual Insurance/12. Are you paying yourselves rent for your property? If not, then at least include your mortgage payments. ALso include bank payments for remodelling or equipment loans, and a small amount for maintenance.

Add advertising costs. This is one of those pie in the sky numbers we talked about. Ideally you should talk in your business plan about your advertising plan... and how much it will cost.

Then come up with your variable costs. THis is icecream/ food/ drinks. If we just look at icecream for now, I assume that it is $x/tub, and that you can estimate how many servings per tub including spoilage. Add napkins/ cups/ utencil costs too.

Then for revenue, take your estimate of the number of sales per day and bring it up to a monthly revenue. I assume there would be seasonality to it (more sales in warm months etc). Ideally, you could use something like Excel to model this, and you would have your variable expenses linked to your revenue. i.e. by changing the sales per month, it would also change the icecream cost per month.

So now you have a model that will calculate profit and loss, and allow you to see sensitivities on how profit varies with icecream sold. Remember the profit must be used to pay off your equipment purchases (freezers/ etc) before anything else.

At this point, you can go off to an accountant for fine tuning.