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The CEO's Bottom Line: Break-even Point

9/27/2023

Break-Even Point

Making profit is the reason you started your business. It's not a charity. It's not a hobby. You go through the 24/7/365 headache for something to be on the bottom line for you AFTER everyone else gets paid (yes, more money will go out of the door than stays in the door!).

Calculating your company's break-even point ("B-E") is crucial if you are going to manage your business with any peace-of-mind at all. The question, "how do I know if I'm winning or losing?", is a time-honored question among business owners. Knowing your company's B-E helps with that answer.

Classical Definition: B-E is the level of sales or revenue at which a business's total costs equal its total income, resulting in neither profit nor loss.

Impact on Small Business: Determining B-E helps business owners to understand the minimum sales volume required to cover all costs and expenses, and to start generating profits. This is especially crucial since businesses only get to keep a portion of each sales dollar to cover operating expenses (overhead). Many businesses use BE to determine when discounts can be offered, or when the same amount of sales brings "extra" or "super" profit. Calculating B-E allows the business owner to set realistic sales targets, to determine profitable pricing strategies, and to implement cost control measures.

Formula to Compute B-E: Operating Expenses / Gross Profit Margin.

OPERATING EXPENSES: $125,836
PRODUCT PRICE: $39.99
PRODUCT COST: $11.32

Before you perform the computation, you must know the Gross Profit Margin ("GPM"). GPM is the percentage of each sale that is available to contribute toward overhead after the direct costs have been deducted. In this case, the GPM is 71.7%. Therefore, the $125,836 is divided by 71.7%, or .717, and the result is $175,504.

B-E: $175,504

Based on these numbers, the business needs to generate $175,504 in sales at 71.7% GPM in order to cover the direct costs of those sales and to have $125,836 left over to cover the company's operating expenses.

For more information on calculating your breakeven point, come to Office Hours here

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Boardroom Development Series: Unleashing the CEO

9/20/2023

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Unit 1 - Laying a Solid Foundation
Embrace your vision, set clear goals, and craft a business plan that aligns with your values. Lay the groundwork for success by staying focused on your mission.

Start small, but dream big. Every great empire begins with a single step. Take that leap of faith and let your passion drive you toward greatness.

Don't fear failure; embrace it as a stepping stone to success. Learn from setbacks, adapt, and persist. The greatest innovations often arise from the ashes of adversity. Sometimes, getting 'how-not-to-do-it' out of the way will reveal the right solution.

Surround yourself with a supportive network ... people who are smarter and will tell you the truth. Collaborate with like-minded entrepreneurs, mentors, and advisors who share your ethical values and inspire creativity. Belong to a groups that harness knowledge and wisdom in your industry. Avoid 'enablers'.

Stay true to your ethics. In a world of shortcuts and compromises, your unwavering commitment to integrity will set you apart and attract loyal customers. Do not succumb to the temptation of 'going along to get along'. People can see your inconsistencies, even when you can't. Do not concern yourself with meeting the standards of others. Instead, meet the standard that you have set for yourself. People like doing business with people that they can trust.

Unit 2 - Navigating Challenges
Never miss an opportunity for growth; adversity will always have a higher purpose and a silver lining.

Break free of the ties that bind you; the ties that others put on you (inherited) as well as the ties that you put on yourself (earned).

Cast wider nets to fill your own holes; people that live different lives typically offer different solutions.

Put yourself into the stream of goodness; find where and how relevant information, expertise, or resources are gathered on a regular basis.

Learn how to take a punch – in life and in business; it’s not about the resistance or the obstacles that you encounter but rather about how you overcome it all … as if you had a choice.

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The CEO's Bottom Line: Break-even Point

Boardroom Development Series: Unleashing the CEO

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