Break-even is the minimum amount of income you need to cover all your costs. It’s the bare minimum number you need to keep your head above water each month.
Oddly enough, we’ll start with your non-business expenses. Your personal expenses. While break even is all about the business, we need to understand what you need to be drawing out of the business to look after yourself. Think of this as your personal break even!
1. Start by writing a list of your personal expenses
These are your portion of the household expenses to keep the house running smoothly. We’re talking mortgage, rent, electricity, telephone, clothing, entertainment, schooling, food.
If you're already drawing a certain amount out of your business - as a salary or drawings – this is a good...
Being comfortable in business may well be an elusive dream to you, but if you’ve been in business for a few years, I’m willing to bet that you have developed your own way of doing things that you’ve become comfortable with.
The classic case I used to see, though not so much anymore, was business owners continuing to use desktop accounting software when they could save literally hours of data entry time and cost by switching to an Internet-based system like Xero.
If you consider the phrase “If it ain’t broke, don’t fix it”, famously used by T. Bert Lance, Director of the Office of Management and Budgets in Jimmy Carter’s 1977 administration in America, then you wouldn’t consider a change at all. But whilst it may not be broke if there’s an easier, quicker, cheaper way to do the same process or job, wouldn’t you want to change?
For your business numbers to tell you about the state of your business, you first have to take the time to look at them and therein lies the first hurdle for most business owners.
They fear what the numbers might say or know that they won’t understand them or have a mindset that they’re not good at maths and as a result, they bury their heads in the sand and/or abdicate all responsibility to their bookkeeper or accountant. None of these actions will help your business to survive let alone thrive.
I was talking to UK business leadership coach, Andrew Priestley, about how important the numbers are in business and his experience with clients who don’t know the basic numbers. It’s disappointing to me that so little is available to help redress this issue and the reason that I continue to write these blog posts. The more knowledge I share, the more I am helping people to overcome the knowledge gap that is vital for business success.