1. 75% Temporary Wage Subsidy during COVID-19
  2. Free Cashflow Stress Test
  3. Free Survival Planning Session
  4. 7 Steps to Pivot Your Marketing
  5. SWOT Examination and Opportunity Planning Session
  6. BDC Small Business Loan
  7. What is the Temporary Wage Subsidy for Employers?
  8. EWSP (Employment Work Sharing Program)
  9. Business Oxygen
  10. How to Close More Sales
  11. Why Connecting with the Tough Decision Makers is Worth Your Time
  12. Having A Bad Day? Find Something Beautiful
  13. What are you worth?
  14. 10 Ways to Foster a Culture of Innovation and Creativity
  15. What are you Measuring in Your Business
  16. 7 Ways to Dramatically Grow Your Business
  17. Company Culture – How to Cultivate the Right Kind for Your Business
  18. How to Keep Your Employees Happy at Work
  19. Four Reasons to Use B2B Email Marketing
  20. Qualities of Good Leaders
  21. How Stress Can Affect Your Job Performance
  22. Making a Customer Relation Management (CRM) System Work For You
  23. Do You Have The Symptoms Of Affluenza?
  24. Culture Of Leadership
  25. A Business Coach Engages in Provocative Conversations
  26. Are You A Carrot, An Egg, Or A Coffee Bean?
  27. Measure Your Way to Success by Using KPI’s
  28. Ensure a Good Return on Your Investment
  29. A Business Coach; A Clients Journey to Self Discovery
  30. Is Your Business Growing or Dying
  31. Breakeven Analysis
  32. Keeping Score in a Winning Business
  33. Exercise wisely…
  34. Roots
  35. Muck & Money
  36. Who said that?
  37. Why are owls so wise?
  38. Business Success: Eight Fundamentals
  39. Uncomfortable Conversations
  40. Are you working hard or just working long hours?
  41. Investing Time on the Right Tasks
  42. COACHING — Not just for GOLF!
  43. Don’t Think Outside the Box – Redefine It!
  44. Ten Reasons People Resist Change
  45. The Art of Delegating
  46. How to Make Your Business Writing Twice as Good
  47. Increase Profits by “Pruning” Your Business
  48. Features versus Benefits
  49. Are you lucky? Or just on your game?
  50. 10 Elements of a World-Class Company
  51. How fresh are your marketing strategies?
  52. Business: The $20,000 Phone Call
  53. Business – Game Changer
  54. Are you still learning?
  55. Riding a Dead Horse
  56. Business & Baseball
Friday, April 10, 2020
  1. 75% Temporary Wage Subsidy during COVID-19
  2. Free Cashflow Stress Test
  3. Free Survival Planning Session
  4. 7 Steps to Pivot Your Marketing
  5. SWOT Examination and Opportunity Planning Session
  6. BDC Small Business Loan
  7. What is the Temporary Wage Subsidy for Employers?
  8. EWSP (Employment Work Sharing Program)
  9. Business Oxygen
  10. How to Close More Sales
  11. Why Connecting with the Tough Decision Makers is Worth Your Time
  12. Having A Bad Day? Find Something Beautiful
  13. What are you worth?
  14. 10 Ways to Foster a Culture of Innovation and Creativity
  15. What are you Measuring in Your Business
  16. 7 Ways to Dramatically Grow Your Business
  17. Company Culture – How to Cultivate the Right Kind for Your Business
  18. How to Keep Your Employees Happy at Work
  19. Four Reasons to Use B2B Email Marketing
  20. Qualities of Good Leaders
  21. How Stress Can Affect Your Job Performance
  22. Making a Customer Relation Management (CRM) System Work For You
  23. Do You Have The Symptoms Of Affluenza?
  24. Culture Of Leadership
  25. A Business Coach Engages in Provocative Conversations
  26. Are You A Carrot, An Egg, Or A Coffee Bean?
  27. Measure Your Way to Success by Using KPI’s
  28. Ensure a Good Return on Your Investment
  29. A Business Coach; A Clients Journey to Self Discovery
  30. Is Your Business Growing or Dying
  31. Breakeven Analysis
  32. Keeping Score in a Winning Business
  33. Exercise wisely…
  34. Roots
  35. Muck & Money
  36. Who said that?
  37. Why are owls so wise?
  38. Business Success: Eight Fundamentals
  39. Uncomfortable Conversations
  40. Are you working hard or just working long hours?
  41. Investing Time on the Right Tasks
  42. COACHING — Not just for GOLF!
  43. Don’t Think Outside the Box – Redefine It!
  44. Ten Reasons People Resist Change
  45. The Art of Delegating
  46. How to Make Your Business Writing Twice as Good
  47. Increase Profits by “Pruning” Your Business
  48. Features versus Benefits
  49. Are you lucky? Or just on your game?
  50. 10 Elements of a World-Class Company
  51. How fresh are your marketing strategies?
  52. Business: The $20,000 Phone Call
  53. Business – Game Changer
  54. Are you still learning?
  55. Riding a Dead Horse
  56. Business & Baseball

Breakeven analysis is a tool used to determine when a business will be able to cover all its expenses and begin to make a profit. For the startup business it is extremely important to know your startup costs, which provide you with the information you need to generate enough sales revenue to pay the ongoing expenses related to running your business.

A startup business owner must understand that $5,000 of product sales will not cover $5,000 in monthly overhead expenses. The cost of selling $5,000 in retail goods could easily be $3,000 at the wholesale price, so the $5,000 in sales revenue only provides $2,000 in gross profit available for overhead costs. The breakeven point is reached when revenue equals all business costs.

To calculate your breakeven point you will need to identify your fixed and variable costs. Fixed costs are expenses that do not vary with sales volume, such as rent or administrative salaries. These costs have to be paid regardless of sales and are often referred to as overhead costs. Variable costs vary directly with the sales volume, such as the costs of purchasing inventory, shipping, or manufacturing a product.

Will Your Business Make Money?

Before you prepare a business plan, you should figure out if your business will break even. How can you tell if your business idea will be profitable? The honest answer is, you can’t. But this uncertainty shouldn’t keep you from researching the financial soundness of your idea. Preparing what’s known as a “break-even analysis,” as well as several other financial projections, can help you determine whether or not your business will succeed.

What a Break-Even Analysis Tells You

Your break-even analysis shows you the amount of revenue you’ll need to bring in to cover your expenses before you make a dime of profit. If you can attain and surpass your break-even point – that is, if you can easily bring in more than the amount of sales revenue you’ll need to meet your expenses – then your business stands a good chance of making money.

Many experienced entrepreneurs use a break-even analysis or forecast as a primary screening tool for new business ventures. They won’t even write a complete business plan unless their break-even forecast shows that their projected sales revenue far exceeds their costs of doing business.

How to Prepare a Break-Even Analysis

To perform a break-even analysis, you’ll have to make educated guesses about your expenses and revenues. Although you don’t have a crystal ball, you should do some serious research – including an analysis of your market – to determine your projected sales volume and your anticipated expenses. Your best bet is to invest in a do-it-yourself business plan product to learn how to make reasonable revenue and cost estimates.

You’ll need to make the following estimates and calculations when you prepare your break-even analysis:

Fixed costs. Fixed costs (sometimes called “overhead”) don’t vary much from month to month. They include rent, insurance, utilities and other set expenses. It’s also a good idea to throw a little extra, say 10%, into your break-even analysis to cover miscellaneous expenses that you can’t predict.
Sales revenue. This is the total dollars from sales activity that you bring into your business each month or year. To perform a valid break-even analysis, you must base your forecast on the volume of business you really expect – not on how much you need to make a good profit.
Average gross profit for each sale. Average gross profit is the money left from each sales dollar after paying the direct costs of a sale. (Direct costs are what you pay to provide your product or service.) For example, if Antoinette pays an average of $100 for goods to make dresses that she sells for an average of $300, her average gross profit is $200.
Average gross profit percentage. This percentage tells you how much of each dollar of sales income is gross profit. To calculate your average gross profit percentage, divide your average gross profit figure by the average selling price. For example, if Antoinette makes an average gross profit of $200 on dresses that she sells for an average of $300, her gross profit percentage is 66.7% ($200 divided by $300).

Calculating Your Break-Even Point

Once you’ve calculated the numbers above, it’s easy to figure out your break-even point. Simply divide your estimated annual fixed costs by your gross profit percentage to determine the amount of sales revenue you’ll need to bring in just to break even. For example, if Antoinette’s fixed costs are $6,000 per month, and her expected profit margin is 66.7%, her break-even point is $9,000 in sales revenue per month ($6,000 divided by .667). In other words, Antoinette must make $9,000 each month just to pay her fixed costs and her direct (product) costs. (This number does not include any profit, or even a salary for Antoinette.)

Don’t Forego a Break-Even Analysis

Although creating a break-even forecast might sound complicated, you owe it to yourself to prepare one as one of the first steps in your business planning process. As you can see, a realistically prepared break-even forecast will tell you whether your idea is a sure winner, a loser or, like most ideas, it needs modifications to make it work.

If You Can’t Break Even

If your break-even point is higher than your expected revenues, you’ll need to decide whether certain aspects of your plan can be changed to create an achievable break-even point. For instance, perhaps you can:

find a less expensive source of supplies
do without an employee
save rent by working out of your home, or
sell your product or service at a higher price.
If you tinker with the numbers and your break-even sales revenue still seems like an unattainable number, you may need to scrap your business idea. If that’s the case, take heart in the fact that you found out before you invested your (or someone else’s) money in the idea.

Further Financial Analysis

If your break-even forecast shows you’ll make more revenue than you need to break even, you can consider yourself fortunate. But you still need to figure out how much profit your business will generate, and whether you’ll have enough cash available to pay your bills when they are due. In short, a break-even forecast is a great screening tool, but you need a more complete analysis before you start investing real money in your venture.

The following are additional financial projections that should also be part of your business plan, to round out your business’s financial picture.

A profit-and-loss forecast. This is a month-by-month projection of your business’s net profit from operations.
A cash flow projection. This shows you how much actual cash you’ll have, month by month, to meet your expenses.

A start-up cost estimate. This is the total of all the expenses you’ll incur before your business opens.
Preparing a break-even forecast will help you decide whether it’s worth drafting a business plan for your idea – but it should never take the place of a complete profit-and-loss forecast and cash flow projection. For instructions on how to create a profit-and-loss forecast and a cash flow projection, see How to Write a Business Plan, by Mike McKeever (Nolo).

 

Tags: , , , , , , , , , , , , , ,