Here's a quick and easy way to calculate the break-even point for your business, and a FREE download tool to calculate your own break-even!

There can be many complex methods that require charts to decide the break-even for a business. Whilst this may be required for medium to large manufacturing operations with a complex array of products to monitor on an ongoing basis, for most of us we just require a quick and dirty way to calculate break-even.

Also did you know that by tweaking the break-even formula we can set a desired profit level for our business? More on this in a moment.

Break-even is a point when a business sells a certain number of units that cover all business expenses (note: – the business has not made a profit at this point). These units can be products or items of service. We will cover this process for a service-based business in our next newsletter issue so stay tuned for this!

So here goes, break even is the volume of sales (or sales dollars) required to cover fixed expenses (overheads).

The Process: (1) Sales – cost of goods = gross profit (GP), (2) GP/sales = GP% (margin). As I said earlier there are many long-winded ways to explain break-even, here is a quick and easy way to calculate this.

Here is an everyday Profit & Loss Report snapshot:

_Table 1 PIX 2

What you do here is look at 2-areas, fixed costs and gross profit % to sales. Remember here that the % cost of goods sold will remain the same, as of course does the $ value of the fixed costs.

So then divide the fixed costs by the gross profit (0.40), then you get 30,000/0.4 = $75,000 and this is the level of sales required to break even.

This means that at the sales level of $75,000 there is 0 (zero) profit dollars as can be seen in the revised profit & loss report (table 2) below.

_Table 2 PIX 2

Note: Gross profit is sometimes referred to as contribution margin. This is because it contributes towards the operating costs (overheads or fixed costs) of the business.

Force net profit: This is a really cool way to calculate your desired net profit, using part of the same formula that we just used for establishing break even. And I have a great Free tool for you to help you do this (see the bottom of the page).

So we know to find the break-even value using the examples in Table 1 and Table 2 above. First we need to look again at our break-even result in Table 2.

We know the following:

% cost of goods sold (this does not change) see 2 in table 2.
% gross profit (this does not change) see 3 in table 2.
Value of fixed costs = $30,000 (this does not change) see 4 in table 2.
So to calculate your desired net profit simply add this value to the break-even formula, as follows, say you want to achieve $15,000 net profit for your business, the force net profit formula is:

= fixed costs + desired net profit value/gross profit %

= 30,000 + 15,000/0.4

= 45,000/0.4 = 112,500

So to achieve a desired net profit of $15,000, you therefore, need sales of $112,500.

Refer to table 3 below.

_Table 3 PIX 2

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A plan gives you a track to run on, your route is well laid out and you can concentrate on your progress and you can map out your future goals and direction.

A plan sets priorities, this can be very important for small business with limited resources and modest budgets. A plan is can be viewed as your stepping stones to cross the river from the present to the future, the path to your vision of what your business will look like in 2, 3 or even 5-years ahead.

With plans for small business, we simply can not afford to do everything, some things have to be postponed, however some other projects are essential and even among these preferred projects not everything can be done at once. One of these essential projects is to develop a business plan! This will be a guide to know what to do first and what's coming next in the grand order of things!

That is why it is so important to have a plan, and to continually check you are on track and to monitor your financial and operational progress! See also Financial Ratios for a great FREE eBook to help you understand the financial management of your business!

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Where are you now and what is your vision of the future? Planning is the art of visualization. It is the bridge to the future!

It is the ability to take something in your minds eye, and transform it into reality. This process is also a safety net, as it allows you to explore possibilities and adopt or describe them dependent on your ultimate goal, before you commit resources to actualize them. The business plan starts with defining the business vision, mission and value statements.

Vision Statements

People often looked puzzled when they hear they should write a vision and mission statement. What are these and what relevance have they to their business? Vision is big picture activity, broad in scope and short on detail, a statement about where you want your business to be at some point in the future. Often referred to as a desirable state at some future point. The vision is what you are creating and moving towards, it will remain constant, in focus, and so will your values.

Mission Statements

The mission statement should answer the following questions:

1) What business are we in?

2) What will the business do?

3) Who for, and why?

4) What sets this business apart from others?

The mission statement defines your business. It does this in terms of market, product line, geographical areas and distribution channels. It provides the foundation to gather and analyze and formulate strategies. The mission statement is a declaration of how your business purpose, customers, products, services, markets, and philosophy all contribute to the achievement of your vision.

Whereas the vision statement is a succinct statement, the mission statement is necessarily longer to convey the business principles. A business's objectives, strategies, and performance measures should then flow from the vision and mission.

The statement of mission, and the resultant strategies and objectives, look to identify where you want to be, and, in the process help you to determine where you are. The statement gives you important information on how to get there, and tells you when you have arrived. It unifies your efforts and energy, and gives meaning and purpose to all that you do.

It begins with the basic question’ what business are we in?’ It will require some thought. Defining your market too narrowly will preclude you from considering other possibilities. Too broader a definition will mean you lose focus on your core business and objectives, and in the process use precious resources for a small result.

Value Statements

This is a list of the values that you hold in conducting your business. This could be described as a set of non-negotiable minimum standards to which all of your work and dealings must apply.

The values of the business can be demonstrated by statements that:

1) Include a customer focus.

2) Underline the importance of people.

3) Acknowledge the business's responsibility is to the greater community.

Mission and vision statements should be statements that energize employees, customers and suppliers. Some people find the ‘warm and fuzzy’ approach too difficult, because there are no hard and fast rules. Often such values are those of the owner, or they are statements dreamed up to satisfy people’s expectations. However when value statements are incorporated, they can be a strong motivating force.

Values may relate to levels of technical competence or how dealings with clients are conducted, both on a business basis and a personal basis.

By always having an awareness of your values can prevent many of the dilemmas that can arise in business situations.

Values are what keep you on track to achieve your vision, you may need to re-visit them from time to time as a pulse check in order for you to say yes, this is the right thing to do!

Check out the Small Business World Mailing List, great tips information, and FREE downloads to help start and grow your business!

Starting and managing your own business is a major step forward in your life. It is not easy, nor is it ever meant to be! Having said that there is nothing more rewarding as seeing your very own business grow before your eyes. The best part is and the end of the financial year when you realize that all this revenue and profit you are seeing was generated by you!

Often considered the backbone of most economies around the world, small business plays a vital role in your country's financial well-being. Whilst most small business operators complain about the lack of time and how hard it is to keep up with changing legislation and taxation, few would give this up or swap this for a full-time position back in the rat race of the corporate world! The trick is knowing how to market your small business, that is where Small Business World comes in, we will show you exactly how to do this and many other things to help you to grow your business.

Check out the Small Business World Mailing List, great tips information, and FREE downloads to help start and grow your business!

Generation X (gen x) has been synonymous with young people since the name was first coined in 1991. However many X'rs are now in their 30’s and when it comes to understanding school students we're talking about Generation Y.

So why are young people so different when it comes to understanding generations?

DescriptionBorn
SeniorsBefore 1925
Builders1926 - 1945
Boomers1946 - 1964
Gen X1965 - 1981
Gen Y1982 - 2000
Gen Z2001 +

Age:
In understanding generations obviously the age or life-stage of X'ers makes them unique to others. Being young they have different priorities to older generations. They generally have no financial commitments, thus over 70% of their income is spent arbitrarily, with the majority going on entertainment, travel, and food.

They have different recreational pursuits to other generations with their top 3 spare time activities being: “go to a party” (74%); “listen to the radio” (74%); and “go to a movie” (72%).

The point is that people operate in different ways because of their age. However age is not the sole reason for generational behaviours otherwise teenagers today would be indistinguishable from teenagers of a generation ago.

Yet this is clearly not the case, and it is because life-stage is just one of three broad factors that differentiate the generations.

Conditions:
The current economic, social, and political conditions which we all live under actually further divide the generations. The same conditions act upon people of different ages in different ways.
Take text messaging on mobile phones as an example: the technology is available to all, however 74% of messages are sent by Generation Y’s and so they are developing the new text language (e.g. “CU L8R” for “see you later”).

Experiences:
Experiences that occur during the formative childhood and teenage years also create and define differences between the generations. These social markers create the paradigms through which the world is viewed and decisions are made.
Baby Boomers were influenced by the advent of the TV, Rock and Roll, the Cold War, Vietnam War, the threat of nuclear war, and the decimal currency.

X’rs saw in the Personal Computer, AIDS, single parent families, the growth in multiculturalism, and the downsizing of companies.
Generation Y’s have lived through the age of the internet, cable television, globalisation, September 11, and environmentalism. Such shared experiences during one’s youth unite and shape a generation. There is an ancient saying that bears much truth: “People resemble their times more than they resemble their parents”.

What most influences Generation Y?
While the Builders’ Generation are most influenced by authority figures and Boomers make decisions based on data and facts, post-modern youth are more likely to make a decision based on the influence of their own peers.

Research has further confirmed that the biggest factor determining the choice a teenager will make is the experiences of their core group of 3 to 8 friends.
Rather than making independent decisions based on core values, they live in a culture encouraging them to embrace community values, and to reach consensus.

It is understandable that young people today are less idealistic than generations past due in part to the media and pop culture that fills their life. The most popular song of the 1940’s was Bing Crosby’s “White Christmas” (1942), for the 50’s it was “Rock around the Clock” (Bill Haley and his Comets, 1955), and the 60’s it was the Beatles’ “I want to hold your hand” (1963).

A quick listen to the music of choice for Generation Y reveals what different times they live in.

The influence of music is second only to the influence of TV and movies in Gen Y culture. Research has found that when teenagers were asked, “What/who has a lot of influence on your thinking and behaviour?” One quarter of the influence on their lives is from TV and movies.

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