The Magic Number: Breakeven

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The Magic Number: Breakeven

Magic word

The magic word is “please”. That is what we are taught growing up. My parents at a very young age always reminded me to say please and thank you as that was the polite way of expressing gratitude and appreciation.

 
Now, my oldest daughter reminds me of my rude and bossy language and adds please to my requests….. my how things change. She will be a great mom someday!

 
Rarely, do we ever talk about the magic number. It’s not your lucky number or your house number or the number of kids you have. I am almost sure your thinking about money now and you are right. The magic number is the breakeven number in your business.

 

Simply put the breakeven is where income and expenses are even. There is no profit.

 
Believe it or not, many business owners are not aware of what this number actually is in their financials. Let’s just be real. As soon as you go into business the dollar signs start to rise. We can look around and quickly see that the income is not covering those expenses.

 

This is when it’s time to evaluate.

 
What is required to produce your product or service? What is required for you to receive customers? Advertising? Flyers? Promotional materials? Are they startup expenses or on-going costs? What does it really cost to do business?

 
This is the number you NEED to know so that you can make sure your are producing enough income to cover them. Your first goal is to cover those costs!!!

 
This is common sense but so many business owners fumble around trying to figure out this “magic number”. Knowing something and being able to actually do it is two separate things.

 
Last year we moved houses and got rid of a ton of furniture so we could fit in our new space. I asked my husband to build me a table last week. Its one of those cool pipe tables and all the instructions were included on Pinterest.

IMG_8423

 

 
Last night, he smiled at me and said “why don’t you just go ahead and buy one honey?”. Music to my ears…..

 
There is a difference between building a table and ordering one, right? Think of all the trouble it takes to make a table. Sometimes that is what accounting is like for some business owners. They simply don’t have the right tools, the knowledge or the time to learn and do it.

 
So here is a recap.

 
Breakeven is when the income and expenses meet.

 
Your goal is for income to exceed expenses at some point (sooner rather than later).

 
There are some items that may affect that figure like debt service (new point).

 
The sooner you are “in the black” the faster you can take home a paycheck, take a vacation or invest more cash into your business…..

 
Finally, breakeven is the “magic number” for finances especially when you are starting out. You MUST know that number.

 
We have the tools, knowledge and expertise to help coach you through this process. Give us a call if you find this all so overwhelming. We will help you make it happen!
 

By | 2015-12-10T17:32:48-07:00 December 10th, 2015|Accounting, Blog|Comments Off on The Magic Number: Breakeven

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