Do you know your Business Break Even Point?

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 breakdown of my business break even point;

  1. Basically, you write a list of expenses you have each week, or month for your business.
  2. Work out what is your not negotiable expenses ie what you cannot run your business without.
  3. Any expenses that are not necessary to run the business can be moved to a luxury list. Be strict with yourself.
  4. 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 business break even point;

  • Rent
  • Electricity
  • IT support & software
  • Accounting & tax agent licences
  • Phone system & mobile plans
  • Wages

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.

This blog is brought to you by AmyAmy Woodley - Founder Start Fresh Accounting