Example: Wavendon Plumbing

Table 22.2 Wavendon Plumbing: 6-month financial projection

1	Calculate your gross profit
	Project sales	£/$/€75,000
	– Direct costs:
	Purchases (material costs)	£/$/€32,500
	Labour costs	£/$/€20,000
	= Gross profit	£/$/€22,500(A)
2	Calculate your gross profit margin

	= Gross profit margin	30% (B)
	Note: For simplicity all figures shown are exclusive of VAT.
3	Calculate your overheads
	Indirect costs:
	Business salaries
	(including your own drawings)	£/$/€ 6,000
	+ Rent	£/$/€ 2,000
	+ Rates	£/$/€ 2,500
	+ Light/heating	£/$/€ 2,500
	+ Telephone/postage	£/$/€ 2,500
	+ Insurance	£/$/€ 2,500
	+ Repairs	£/$/€ 2,000
	+ Advertising	£/$/€ 1,500
	+ Bank interest/HP	£/$/€ 1,500
	+ Other expenses	£/$/€ 1,500
	(eg depreciation of fixed assets)	£/$/€
		£/$/€
		£/$/€
		£/$/€
		£/$/€
	= Overheads	£/$/€16,500 (C)
4	Calculate your actual turnover required to break even

5	Profits accumulate in favour of the business once the break-even point has been reached. As overhead costs have been provided for in the break-even calculation, profits accumulate at a rate of 30 per cent (ie the gross margin percentage) on projected sales over and above the break-even figure.
	In the case of the example, this is:
	Projected sales	£/$/€75,000
	– Break-even sales (D)	£/$/€55,000
	× Gross profit margin (B)	30%
	= Profit (for 6 months)	£/$/€6,000
	These figures can be affected by:
	actual level of sales achieved;
	increase/decrease in gross margin;
	increase/decrease in overheads.

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