Most businesses are born on the back of an envelope, or at best on a yellow legal pad. There are, though, some very useful ways you can use to help with your planning. Begin by conducting a very detailed analysis of all of your fixed and variable costs. A fixed cost is one that does not change no matter how many widgets you sell or services you provide; this is often referred to as overhead. For example, if you must rent an office, the monthly payment is a fixed cost of doing business. So, too, is the cost of any basic tools and equipment you must purchase or rent, most insurance, and basic utilities.
In the other side, if you have any employees, they are a fixed cost if they are on salary and being paid whether or not they sell or perform services successfully. A variable cost is one that is directly related to sales; it can also be referred to as the incremental cost per unit. For example, if you are handcrafting cuckoo clocks, the amount of money you spend on parts and supplies varies based on the number of clocks you put together each month. If you hire and pay workers on an hourly basis, their cost varies with production or services. As an example, if you must purchase $50 worth of materials and spend one hour of time that you value at $50 to assemble a clock, the incremental cost of that clock is $100. It is essential that you have a realistic accounting of your fixed costs (overhead) and your variable costs (incremental cost per unit) before you can determine your break-even point and build in a profit.