A break even analysis is an important metric for any business owner or manager. How much revenue must you generate to cover all your costs and keep your company moving through this tough economic climate? Your costs should include everything that assists in generating revenue. Examples include employees (including benefits), materials, overhead, and insurance.
The first step to a break even analysis is to have a good tracking and records management in a spreadsheet. Understand where all your costs are coming from and the impact each cost has. Costs can be variable or fixed and you should take both into account in your break even analysis. A fixed cost is something that does not change in a given year, such as insurance, employees paid via yearly salary and rent, these are normally the easiest to deal with. A variable cost is something that changes with quantity or time, commissions on sales are a variable cost, materials are almost always variable (as the price changes daily with supply and demand), and hourly employees.
After your costs are understood and accounted for you need to do the same for your revenue sources. Now if you sell a service or good you can figure out exactly how much you need to sell to cover you costs. Of course just covering your costs isn’t the goal of any business but in this tough economic climate staying alive while our economy slowly rebuilds is great for you, your employees and your customers.
Capital Cents are experienced providing break even analysis for our clients. If you need help Contact Us today!