Running a small business is not a easy task. Any business owner would agree. I have conversations about this every day with my clients as we discuss various things. I was recently discussing break even point with a client, as I realized they had not worked out what this was for them.
Break Even Point is a very accountanty word (that’s not a word). When I was calculating my break even point I didn’t use a formula or anything. I did it how any business owner can, even if you don’t like numbers. Here’s my simple break down;
- Basically, you write a list of expenses you have each week, or month for your business.
- Work out what is your not negotiable expenses ie what you cannot run your business without.
- Any expenses that are not necessary to run the business can be moved to a luxury list. Be strict with yourself.
- Add up the expenses you have highlighted as necessary, and from this you get a figure of how much it costs to run your business.
The more accounting way to calculate this is to include a margin for gross profit. That’s fine aswell, but I like working with my figure without profit. As once I bring this income in I know the rest is either profit or I can use it for the ‘luxury items’ in the business.
To put this into a more realistic example, the following is what is included in my break even point;
- IT support & software
- Accounting & tax agent licences
- Phone system & mobile plans
Anything else I have deemed as luxury ie advertising, promotional items, website, software add-ons, uniforms. This might sound odd to include these as luxury, but as I have grown my small business I have done things bit by bit to have all these things, and I don’t take them for granted.
So, from my list there, say my break even point each week is $5,000. This is then the figure I work on bringing in to ensure the business keeps going, and anything above to either taken as profit or invested back. This works for me because it is simple, and I know exactly how much is necessary to open my doors every day.
Do you need any help making things simple? Get in touch today.
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