Chapter 2 – Financial Control – Rule your money
This is part of the ‘How to’ coaching series. An ongoing series of activities to make your business successful. Follow it step by step and see positive results as you develop a robust business model, set on a solid foundation.
Activity 10 – I know how to calculate Break-Even and I know where my business stands in this regard
Over the years I’ve discussed with business owners about when they will break-even. Some didn’t know, and some made the mistake of forgetting to include the total fixed costs in the equation.
The best way to look at your break-even position is when all the bills are paid; including your salary, operating costs, production costs and all the other business costs.
The break-even point is when the amount of sales needed to achieve a Net income of zero is reached.
The Break-Even point is when a company’s revenue equals total fixed costs plus variable costs, over a given timeframe.
To calculate your company’s break-even point, use this formula.Fixed Costs ÷ (Item Price – Variable Costs) = Break-Even Point in Items.
For example – If your Fixed costs are £18,000; and the Price of your product is £200; minus the Variable cost of producing the item at £20; your break-even will be 100 items. If you sell 100 Items at this price and cost, your business is said to be at break-even.
£18,000 ÷ (£200 – £20) = 100 Items
So, do you know what sales you need to make, and by when you will break-even?
The ‘How to’ bit:
The calculation above is simple, yet it can be a complicated process if you haven’t got your financials organised.
Work out all of your costs (Fixed & Variable), determine the prices of your products (service), and work out how many sales you need to make. Part of the exercise is to decide the sales ratio (mix) of your products (services) that will bring your business income verses outgoings to a Net value of zero.
If you would like help with determining your Net Break-Even point, follow this link and Contact Us…