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 Here's the 8th newsletter in the Business Management series that will take you through aspects of managing (business, financial, jobs, labor) giving you insights and techniques to help you build a better business.
The following content is extracted from Mike Holt's Business Management Skills Workbook.
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Financial Management - Break-Even Point |
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If you don't know your break-even you can't sell your job; you won't stay in business if you price at or below cost! |
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Break-even is the minimum amount of sales needed to cover expenses. That volume of financial activity at which you could continue in business indefinitely without making a profit is called your break-even point; however, the reason you are in business is to make a profit. So, if your profit and loss statement doesn’t show a profit, you’re not achieving your goal. You’re simply receiving back what was expended during the current recorded period.
Breaking even today does not return the losses occurred in the past, or build up a reserve for future losses, or provide a return on your investment (the reward for exposure to risk). With all business activities, there are risks. When an equitable reward is earned, a return is honorable. There’s nothing sinful about making a profit. It’s just hard to do!
Contractors are not in the business of selling the job at or below cost. Once you determine the estimated break-even cost of the job, you need to determine the selling price.
Establish a policy of posting deposits and bills daily, including payroll. Use these figures to determine your average bill. After a full year of tracking, you’ll be able to determine your average daily bill and your average daily deposits. You can then plot these figures because it’s based on a year-to-year average. You will then know what you have to do each day.
When your deposits peak, you can learn to anticipate when heavy expenses will come. You’ll then be in a better position to anticipate the “lean” times and compensate for them in advance.
We'd love to hear from you about this series, and the ways you're using it. Send us your comments and feedback by clicking on Post a Comment below. Look out for the next part in this series a month from now, and please share with your colleagues.
This content is extracted from Mike Holt's Business Management Skills book. If you have enjoyed this newsletter, you can get the full content here.
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