Two Break-Even Numbers: Why Doubling Your Gross Didn’t Fix Your Cash Flow

Updated November 6, 2026

In the last few weeks I’ve had the same conversation with about six different school owners. Each of them is stressed out month to month. Stressed about paying bills, about paying taxes, about making the mortgage.

And here’s the part that surprises people: most of them are owners we’ve helped double or triple their gross over the last two or three years. They went from $15,000 a month to $60,000 a month, and somehow they feel tighter on cash now than they did at $15,000.

I always start with the same questions, so I’ve become a little repetitious. What is your break-even point? What’s the number at which the money coming into the school has paid every bill? And then, what’s your personal nut? It amazes me how often a school running a million or $1.2 million a year can’t answer either one.

What are the two break-even numbers every school owner needs?

You need two numbers, not one.

1. The school’s break-even. Everything it costs to keep the doors open in a month: rent, payroll, advertising, utilities, phones, liability insurance, uniforms and gear, trophies and awards, printing and the small stuff. This is the point at which you start getting paid.
2. Your personal nut. Everything it costs to run your household in a month: mortgage or rent, utilities, phone and cable, food, medical insurance, cars, clothing, a vacation fund, and the miscellaneous that always shows up. Plus the taxes you’ll owe on what the school nets.

The school’s number tells you whether the business works. The personal number tells you whether the business works for you. You can have a perfectly healthy school and still be drowning, because the gap between the two numbers is where the stress lives.

How do you calculate a martial arts school’s break-even?

List every expense, then divide each one by your gross to see it as a percentage. One rule on payroll: payroll is everything a person costs you. FICA matching, medical insurance you provide, all of it goes in the payroll line.

Then hold the three big lines up against the targets I’ve used for every school I’ve owned or consulted:

Expense	Target as a share of gross	What goes wrong
Rent	12 to 15%, less is better	Too much square footage, often traded for visibility and foot traffic
Payroll (absentee-owner basis)	No more than about 25%	Headcount creep as the school grows
Advertising	Around 15%	Almost always underspent

“Absentee-owner basis” means payroll as if the school runs without you there day to day, or even week to week. If your own pay is buried in that line, you can’t see whether the business is healthy. I go deeper on each ratio in The Martial Arts School P&L.

Notice what those targets imply. If the numbers are in line, you spend more on advertising than you do on rent. Most owners have that backwards.

What does a worked example look like?

I built this one live on a member call with made-up but realistic numbers.

Personal nut: mortgage $5,000, utilities $500, phone and cable $500, food $1,500, medical insurance $1,000, cars $1,000, miscellaneous $1,000, clothing $500, vacation fund $1,000. Call it roughly $12,000 a month before taxes.

Monthly gross	School net (approx.)	Personal nut	How it feels
$45,000	about $15,750	$12,000 + taxes on the net	The school looks fine. You’re short every month.
$60,000	about $23,700	$12,000 + taxes	Comfortable. Bills paid, nothing to spare.
$70,000	higher	$12,000 + taxes	Now you can set aside $5,000 to $10,000 a month to invest.

Annualize it and the point jumps out. A $600,000 year sounds like it should be a good year. For this owner, it’s a problem. A $720,000 year is fine, not great, but not stressful. Without doing the math, you’d never know which side of that line you’re on.

Grand Master Jeff Smith put his finger on why this happens to growing schools: the owner who was barely breaking even at $15,000 doubles the gross and is still barely breaking even at $30,000, because the standard of living rose to meet it. It’s human nature. The more you make, the more you spend. Then the gross dips a little and you’re in dire straits.

What is a “come hell or high water” number?

Once you know the number that makes you comfortable, it stops being a goal and becomes a minimum. In my example it was about $65,000.

The way I’ve operated for 40 years, and the way Grand Master Smith has operated for 50, is this: I don’t care what happens that month. A two-week storm, a medical issue, a staff member who breaks a leg, a flood, a hurricane. Every month, I hit that number. Come hell or high water.

If you don’t know the number, it’s easy to miss it, feel the stress next month, and find out it’s too late to do anything about it. And it cuts both ways. If your number is $85,000 and you did $80,000, you missed. If your number is $25,000 and you did $22,000, you’ve put yourself in a world of hurt.

How do you track it weekly instead of monthly?

Divide the monthly number into weekly targets. If my break-even is $65,000, I need about $17,500 a week, or put another way: if my billing covers $45,000, I need another $20,000 from new enrollments, renewals, down payments and paid-in-fulls. If I’ve only found $10,000 of that by midmonth, I have a problem. If I’ve found $30,000, I’m great.

Most schools wait until the end of the month, look at the numbers, and discover they missed. If you haven’t hit a quarter of the goal by the end of week one, turn up the heat in week two. The same goes for marketing: if October should have produced 200 to 300 appointments and you barely eked out 100, you want to know that in week one, not a week after the month closes. The weekly stats I’d watch are laid out in The Scorecard Method.

And when the month is coming down to the wire, you manufacture the outcome. We’re going to find a couple of cash renewals. We’re going to find some bigger down payments. We’re calling everyone who canceled an appointment and everyone who needs to come in and finalize. I’ve hit plenty of months in the first week, and plenty that came down to the last day.

Where should you cut when cash gets tight?

Almost never in the school’s small lines. There usually isn’t much there. Look at three things instead:

• Payroll creep. Schools that go from $30,000 to $100,000 a month often see payroll go from 22% of gross to 50%. More people running around doesn’t mean more productivity. A lower headcount of higher-quality, more full-time people, each paid well on incentive, usually beats a crowd of part-timers.
• Rent. Hard to fix quickly. Mostly it tells you how high the top line has to be. If your rent is $17,000, you need something like $120,000 a month to bring it into line.
• Your personal spending. If the school nets $35,000 a month and you can’t make ends meet, the problem isn’t the school. Look at the credit cards and the lifestyle.

And two lines you never cut: advertising and your own education and training. More than once in my career I’ve been a couple of months behind with the landlord rather than cancel putting 25 staff members on a plane to a training that mattered. What big, dumb companies do when cash gets tight is cut advertising. That’s the last place to cut, because the only way more people come in the door is if you’re beating the bushes or paying for lead traffic.

Is your top line the real problem?

Usually, yes. Two levers move it without adding a dollar of expense.

First, advertising, broadly defined. When I say “spend more on advertising,” most owners hear “Meta and Google,” then tell me they tried five agencies and none worked. That’s not what I mean. I mean the whole mix: online paid media, marriage mail, direct mail, and, where you still have a strong daily paper, Wednesday and Sunday regional inserts. If $500 to $900 in advertising produces one enrollment at today’s price points, that’s a good trade.

Second, a premium option at renewal. Price your leadership program at double or more what the trial enrollment costs, with a fallback at about a 50% bump. Say you have 100 students renewing and half choose the higher option at an extra $200 a month. That’s $10,000 a month with no added expense, which in my example is the difference between going negative every month and being comfortable. The full pricing logic is in The Martial Arts Leadership Program.

How can AI calculate your break-even in five minutes?

This used to require an accountant and a weekend. Now it doesn’t. Download your bank and credit card statements year to date, business and personal, and feed them to Claude, ChatGPT or any of the major AI tools. Then ask:

• “Give me my average monthly cash-flow break-even for all business expenses, month by month and year to date.”
• “Give me my personal break-even each month, including credit cards and utilities.”
• “Show me every subscription hitting these accounts.”

That last one is worth the exercise by itself. You’ll find three tools doing the same job, and streaming services nobody watches. I’m paying for a cable package I haven’t used in three years. It’s not tax advice, and you should still have a good accountant, but it will give you your two numbers fast.

Quick Answers

What percentage of gross should a martial arts school spend on rent?

Aim for 12 to 15% of gross or less. Above that, your top line needs to grow to bring it into line.

What should payroll be as a percentage of gross?

No more than about 25%, calculated as if the school runs without the owner day to day, and including everything a person costs you.

How much should a martial arts school spend on advertising?

Around 15% of gross, judged by return on investment. Most schools spend too little, not too much.

What is a personal nut?

The minimum monthly amount you need to cover your household expenses and the taxes on your income. Your school must net at least that much.

Why am I stressed about cash after my school grew?

Usually payroll creep or personal spending rose with the gross. Calculate both break-even numbers and you’ll see which.

Want help finding your two numbers? Grab the free book at FillYourSchool.com, or call or text 1-720-256-0208 and ask Bob Dunne about a free evaluation of your school.