Most new businesses in Singapore do not fail because the idea was weak. They fail because the owner never worked out how much revenue was needed simply to stand still. Break-even analysis for new businesses answers that one question: at what level of sales do you stop losing money?
The maths is simple. Doing it honestly, with real Singapore costs such as rent, CPF contributions and professional fees included, is what separates a useful break-even analysis from a comforting one.
Who this applies to
Break-even analysis is relevant to almost every new venture, whether you have incorporated a private limited company through the ACRA BizFile+ portal or registered as a sole proprietor. It is most useful for:
- First-time founders setting an opening price and working out how much runway they need
- F&B and retail operators signing a lease, where rent is committed long before sales arrive
- Service firms working out how many billable days a month keep the lights on
- E-commerce sellers whose shipping and payment gateway fees quietly eat the margin
- Directors preparing figures for a bank, an investor or a government grant application
Key rules and requirements in Singapore
To be clear at the outset: no provision of the Companies Act, and no IRAS or MOM rule, requires a company to perform a break-even analysis. It is a management accounting tool, not a statutory filing. What the law does require is the underlying data that makes the analysis possible.
- Proper accounting records. Section 199 of the Companies Act requires records that sufficiently explain your transactions, and IRAS expects them kept for at least five years. If costs are not captured properly, no break-even figure will be reliable.
- Estimated Chargeable Income. Most companies must file ECI within three months of their Financial Year End, which means estimating profitability before the accounts are finalised. That is easier if you already know where break-even sits.
- GST registration. Registration is compulsory once taxable turnover exceeds SGD 1 million in a calendar year, or when you reasonably expect it to. A forward-looking sales model tells you when the threshold is approaching rather than after you have crossed it.
- Employment costs and directors’ duties. Employer CPF contributions and the Skills Development Levy are real fixed costs, so gross salary understates what a hire costs. Section 157 also requires directors to use reasonable diligence, which includes knowing whether the company can pay its debts as they fall due.
Step-by-step process
Step 1: Split every cost into fixed or variable. Fixed costs stay broadly the same whether you sell one unit or a thousand: rent, base salaries and CPF, corporate secretarial and accounting fees, software, insurance. Variable costs move with each sale: materials, packaging, delivery, payment processing, commission.
Step 2: Calculate contribution. Contribution per unit is the selling price less the variable cost of that unit. As a percentage of the selling price it becomes the contribution margin ratio. This is what is left from each sale to pay down fixed costs.
Step 3: Divide fixed costs by contribution. Break-even in units is monthly fixed costs divided by contribution per unit. In revenue terms it is fixed costs divided by the contribution margin ratio. Use the revenue version if you sell many different items.
Step 4: Add the costs owners forget. Include a realistic salary for yourself with the employer CPF that goes with it, and exclude GST from revenue if you are registered, because GST collected is never yours to keep.
Step 5: Convert it into something manageable daily. A monthly break-even of SGD 27,000 means nothing to a kitchen team. Eighty-nine covers a day does. Translate the figure into the unit your staff actually count.
Step 6: Set a margin of safety, then re-run it quarterly. The gap between expected sales and break-even is your margin of safety. Ten per cent is thin; thirty per cent gives room for a slow month or a rent review. A figure calculated once at incorporation and never revisited is of no use to anyone.
Common mistakes to avoid
- Working for free in the model. Leaving the founder’s salary out of fixed costs produces a flattering break-even point the business can never sustain.
- Treating GST as revenue. If you are GST-registered, the tax you collect belongs to IRAS. Modelling on GST-inclusive prices overstates contribution.
- Ignoring statutory employment costs. CPF contributions and the Skills Development Levy add materially to the cost of every local hire and are not optional.
- Confusing profit break-even with cash break-even. A company can break even on paper and still run out of money, because customers pay in sixty days while staff are paid monthly. Model both.
- Blending very different products. One average margin across a high-margin service line and a low-margin hardware line hides which of the two is funding the business.
Practical examples
A new cafe. Monthly fixed costs are SGD 18,000: rent of SGD 7,000, salaries including employer CPF of SGD 8,000, utilities of SGD 1,500 and other overheads of SGD 1,500. The average bill is SGD 12 and ingredients and packaging cost SGD 4.20, giving a contribution of SGD 7.80 per customer. Break-even is 18,000 divided by 7.80, or 2,308 customers a month. Trading 26 days a month, that is roughly 89 customers a day. The owner had assumed 60 covers would be comfortable. It would not be.
A two-person consultancy. Fixed costs are SGD 9,500 a month: a director’s salary and CPF of SGD 6,000, a serviced office at SGD 1,200, software at SGD 800, and SGD 1,500 of accounting support and other overheads. Variable costs, mainly subcontracted work and client travel, run at 15 per cent of fees, so the contribution margin ratio is 85 per cent. Break-even revenue is 9,500 divided by 0.85, or about SGD 11,180 a month. At a day rate of SGD 1,400 that is eight billable days out of roughly twenty available.
An online retailer. A product sells for SGD 45, with SGD 27 of goods, shipping and gateway fees, so contribution is SGD 18 an order. Against fixed costs of SGD 6,000, break-even is 334 orders. If marketing lifts acquisition cost by SGD 6 an order, break-even jumps to 500 orders on the same fixed costs.
How a corporate secretary can help
A corporate secretary does not build your financial model, but the work sits closer to it than owners expect. Credible break-even figures depend on clean books, correctly classified costs and statutory obligations that are budgeted rather than discovered late.
- Maintaining accounting records that meet Companies Act requirements, so cost data is trustworthy from the start
- Setting up a chart of accounts that separates fixed from variable costs, rather than lumping everything into general expenses
- Calculating the full cost of each hire, including employer CPF and the Skills Development Levy
- Monitoring taxable turnover against the SGD 1 million GST registration threshold and flagging it before it is breached
Raffles Corporate Services supports new companies with incorporation, corporate secretarial work, bookkeeping, tax and payroll, so the numbers behind your break-even calculation and the compliance calendar around it are handled together.
Requirements may change, so always check the latest guidance from ACRA, IRAS or MOM, or consult a professional adviser.
Frequently Asked Questions
Is break-even analysis required for my ACRA or IRAS filings?
No. It forms no part of your annual return, financial statements or tax computation. The cost data behind it does come from the same accounting records the Companies Act requires you to keep, so the work is not wasted.
How often should a new business recalculate its break-even point?
Quarterly in the first two years, and immediately after any change to pricing, rent, headcount or a major supplier contract. Each of those moves either fixed costs or contribution.
Should the founder’s salary be treated as a fixed cost?
Yes, if you intend to draw one. A calculation that assumes the founder works unpaid indefinitely is not a business plan. Include the salary you actually need, plus employer CPF where applicable.
Does break-even analysis work for a business with many products?
Yes, but use the revenue method. Calculate a weighted contribution margin ratio across your actual sales mix and recalculate when the mix shifts, because a change in mix alone can move break-even.
Key takeaways
- Break-even analysis tells you the sales level at which the business stops making a loss, and it is one of the few numbers a new owner should know by heart
- The formula is fixed costs divided by contribution per unit, or by the contribution margin ratio for a revenue figure
- No Singapore statute requires the analysis, but the Companies Act does require the accounting records that make it credible
- Include the founder’s salary, employer CPF and the Skills Development Levy, and strip GST out of revenue if you are registered
- Translate the figure into daily units your team can act on, keep a margin of safety of 20 to 30 per cent, and revisit it quarterly
If you would like to find out more about how Raffles Corporate Services can assist with your company’s compliance and corporate secretarial requirements, please get in touch with the team at [email protected].
Yours sincerely,
The editorial team at Raffles Corporate Services
Disclaimer: This does not constitute legal advice. If you require legal advice, please contact a lawyer.