ARDOtools

Small Business Finance Kit

Work out the monthly gross profit a revenue target actually produces, how much cash a fixed-cost buffer needs to hold, and how far short of that buffer you currently are.

Monthly plan

Plan

How it works

  1. Enter the revenue target and the margin

    Gross profit is the revenue you are aiming at multiplied by the gross margin percentage you actually achieve. It is the first number because it is the one people overestimate: revenue is not money you keep.

  2. Say what is fixed, and how many months of it you want covered

    Fixed costs are what the business owes whether or not it sells anything. Multiplied by the number of months you want to be able to survive, that is the buffer target.

  3. Read the gap

    The last figure is the buffer target minus the cash you have now, floored at zero. If it is zero, the buffer exists. If it is not, that number is what you are short by, and it is worth knowing well before you need it.

Who this is for

A quick monthly check

Three figures that show whether the shape of the business is changing, in less time than opening the accounting software takes.

Before a funding conversation

Know the size of your own gap before someone else calculates it in front of you. It is a short conversation either way, but only one version is comfortable.

Weighing a hire

A salary is a fixed cost, so it raises the buffer target every month as well as the monthly outgoings. Adding it here shows both effects at once.

Sanity-checking a plan

Plans that assume revenue arrives before costs rarely survive contact with a calendar. This is the cheapest way to find out how much cash the assumption needs.

Questions

What does this actually calculate?
The core is three things: gross profit, as revenue times margin; a buffer target, as fixed costs times the number of months you want covered; and the difference between that target and your current cash. It also shows what is left each month after fixed costs, the revenue you need to break even, and how many months of fixed costs your cash already covers. It does not project a date you run out, because that needs a month-by-month cash flow, which this is not.
What counts as a fixed cost?
Anything that does not move with sales volume: rent, salaries, software, insurance. Costs that scale per sale are variable and belong in the margin figure instead, so counting them twice is the usual mistake here.
How many months of buffer should I hold?
Three is the common rule of thumb and the default here. The honest answer depends on how quickly your revenue could fall and how fast you could cut: a business with long contracts and short notice periods needs less than one with neither.
Why is gross profit lower than I expected?
Because margin compounds against the whole target rather than the part you were thinking of. At a 45 percent margin, a revenue target of twelve thousand leaves five and a half, and the fixed costs come out of that — not out of the twelve.
Is this a substitute for bookkeeping?
No. It is a back-of-envelope view for decisions between bookkeeping cycles, using numbers you already know. Your accounts remain the record, and anything with tax consequences belongs there.
What if my margin varies by product?
Use a blended figure weighted by what you actually sell, not the average of the percentages. A high margin on something that sells rarely moves the blend far less than it looks like it should.
How is break-even revenue worked out?
It is fixed costs divided by the gross margin. At a 45 percent margin and 3,000 dollars of fixed costs that is about 6,667 dollars a month. Below that revenue the business loses money every month before any buffer is built, which is why it is shown next to what is left after fixed costs.