Why Every Business Needs to Know Their Breakeven Point
As a business owner, there are a million things that may keep you up at night. From managing employees and clients to creating marketing and attracting new business, there’s a lot that can rob you of your precious sleep.
And let’s not forget about the one burning question that plagues business owners worldwide:
Will my new business ever make money?
The truth is, you can never be 100% certain that your business will be profitable. But, you can take proactive measures to help your business survive and thrive. And a good place to start? Breakeven analysis.
But first, what is a breakeven point?
A breakeven point is reached when the total revenue matches the total business costs. In other words, you’re not making money, but you’re not losing money either.
Calculating your breakeven point depends on many estimates and calculations, as well as full awareness of its limitations. There are many online tools to help you calculate your breakeven point, but because the number (and concept) is so critical to the future of your business, it wouldn’t hurt to have some professional guidance.
Why is a breakeven point so important?
By analyzing the breakeven point, you can understand when your business will be able to cover all its expenses and start making a profit (the moment you’ve been waiting for!).
But beyond that, breakeven analysis can help you determine:
- projected sales
- the best price per unit of a product
- the maximum amount of profit that can be generated
- how changes in sales and fluctuations in costs affect your profitability
- the impact on profit if a fixed cost replaces a variable cost (if new equipment replaces labour, for example)
- the amount of loss your business can sustain if your sales take a downturn
Breakeven analysis also shows investors that you’re committed to the ongoing success of your business. Without key financial projections, including your breakeven point, you may have trouble getting anyone to back you.
When it comes to your financial goals, no one knows more than the Certified General Accountants at Rewers & Tiemer. We can show you exactly how to determine your breakeven point and guide you towards a more profitable future. We’ll give you the confidence and motivation you need to kick your business into high gear. Contact us today!
Image courtesy of Tax Credits.