'Back of the napkin' break-even and resource analysis

The break-even point is a critical financial milestone for my venture. Where I will not be pursuing institutional investment or venture capital, the primary factor will be hitting a production level of financial sustainability, not providing extremely large returns to investors.

In terms of operating capital requirements, each vehicle will require an investment of approximately $2,500-3,000 including the vehicle itself, all parts, and any outsourced labor costs. The operating expenses of a two bay garage in Lowell will be in the range of $2,000-2,500 per month including a lease (approximately $1.25/ft sq) and other overhead costs such as equipment loans and insurance.

At an average sale price of $3,500 and a maximum of $500 profit per vehicle this indicates that the business could be cash flow neutral with as few as four vehicles per month (this is probably an underestimate). However, a more reasonable target will be 10 cars per month minimum, as this will provide ample income, approximately $35,000 per month to reinvest in the business.

Assuming a surplus after all expenses and reinvestment in new project cars, there will be enough money to hire up to two non-volunteer employees (or more part-timers) and reinvest in the business. From a capacity standpoint, 10 cars per month also works well for a two bay garage. This would indicate an average cycle time of 5-6 days per vehicle. Any vehicles requiring more than 30 hours of labor and additional testing are not in the scope of our restoration process.

I will be performing more detailed break even calculations in my final report and analysis. However, using some ‘back of the napkin’ calculations, I wanted to quickly show that the business will be viable from a cash flow standpoint. With total start up costs of approximately $60,000, even if all of that money were to come from loans, there will certainly be enough cash available to pay off those loans within a 3 year time period. Additionally, the volume of vehicles at 10 per month will be well within the feasible capacity of the garage space and could easily be managed by a small team of volunteers on my executive board. Assuming a 5 hour investment per car to deal with all purchasing, planning, and sales transactions, the business could operate with about 50 hours per month of direct management time.

Overall, the monthly expenses at a rate of 10 cars per month will be approximately $31,000. This monthly output level will require approximately 250 labor/restoration hours, 50 project management hours, and 50 hours of managing the venture itself per month. This could very reasonably be accomplished within two years utilizing a 5 person management team and a primary volunteer base of 20 people.