Know your Break Even point.
Your break even point is the moment in time when your income equals your expenses. If your income is higher than your expenses, you have a profit. If your expenses are higher than your income you have a loss.
Different industries have different profit margins, but a break-even analysis can help you determine at what point you’ll reach a cash flow positive situation and make a profit – your breakeven point
Why is this such a critical number?
First of all, to find your breakeven point you need to know what all of your expenses are. How much does it cost you to produce your product or deliver your service? That includes how much you need to pay yourself. If your business isn’t able to support you, you’re not breaking even. Once you have and know your total expenses, you have a place to start. What do you need to do to achieve a level of sales high enough to cover your expenses? How many customers do you need to serve? How many products do you need to sell? If you can’t reach that income level, what can you do to cut your expenses?
Your whole business plan can flow from that one number. You can use your break even point as a powerful business tool to make decisions about marketing, strategy, plans for expansion, hiring a new employee, etc.
Break even point simply means a point where there’s neither profit nor loss.
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~ Adeniyi Bamgboye (ACA, MBA, ACTI, ACCA)