Average Daily Costs to Run a Business
- Ed Patton
- Mar 27
- 2 min read
Updated: Sep 29
Many SMB business executives are surprised about how high the average daily costs are to run their businesses.
I have learned to use this simple exercise to approximate the average daily costs of running a business.
The only information needed is the company’s estimated annual sales and its approximate EBITDA amount or the approximate EBITDA as a % of sales.
See the following link to an Excel spreadsheet for this simple calculation.
This can be tailored to any business by changing the cells highlighted in yellow.
This “back-of-the-envelope” calculation is conservative because it does not include non-P&L operations costs such as taxes, cap ex, debt service, etc.
In this example, annual sales are $10MM and the approximate EBITDA % is 10% (which is a traditionally high EBITDA %).
The result of this calculation is an average daily costs of about $25K.
An important point this makes to executives is that their businesses are often larger and, therefore, more financially complex than they appreciate.
These high average daily costs help drive home the need for businesses to understand and monitor their full financial profile.
The higher the EBITDA margins, the lower or more conservative the costs. I used a high margin in this example to be conservative. Even with these high margins it still shows how high these average daily costs can be.
Using 365 days per year can also result in a conservative average daily costs because many businesses operate fewer than seven days per week.
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Note about above link...this is my first time to link a spreadsheet to a blog.
I think I have it locked so others cannot change the yellow cells of $10MM in sales and 10% EBITDA margin.
After opening this spreadsheet it can be downloaded to your computer to be tailored to other businesses.
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Many SMB executives do not appreciate the financial complexity of their companies.
They are often surprised about how high their average daily costs are.
Breaking out costs to an average amount per day helps put this complexity into a more relatable amount.
Many executives have operations backgrounds and appreciate the complexity of their company’s operations such as sales, production, personnel, etc…but, tongue-in-cheek, many want their companies’ financial complexity conveyed to them in a simple, comprehensible manner and as easy to understand as those of a corner lemonade stand.
Again…point is to drive home the financial complexity of their businesses and the importance of understanding their companies' full financial profiles.
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