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

Download the break-even & force profit calculator

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For at least three days, maintain a detailed account of your activities, this will tell you where you are spending your valuable time. A week could be better, particularly if your business is cyclical and certain things come up on only on certain days.

These are the steps to keeping a log:

  • Note today's date, list three to six goals for the day, tasks that must get done today. Set a deadline for each one.
  • Record each activity as the day progresses. Every time your attention shifts from one thing to another, write down the diverting activity, no matter how trivial.
  • This means you will record all interruptions, noting their sources and reasons.
  • Make a note of how much time you spend on each item.
  • Set a priority for each single item.
  • The point is at the end of the day you will look back and see what proportion of time was spent on high priority work.

Use the following weighting for this exercise:

1 = Important and urgent (must do)

2 = Important (should do)

3 = Routine (could do, or delegate)

4 = Wasted effort (why did I do that?)

In a comments column, record your ideas and thoughts on how you might have  done things better (or been more productive). Some people like to go back and do this at the end of the day. I suggest that you make comments as you go along because they are fresh in your mind.

Once you have done this for a few days or more, you can easily see where the time wasters are, and these are the barriers to your productivity. Also you can see where you need to be more disciplined in your business!

Good luck, and stay focused!

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2

Before you start:

  • Gather the necessary material and arrange it in a logical sequence.
  • For best results, maintain a content theme and format by using common borders page layouts and colors.
  • Ensure the correct placement and usage of the company logo, if applicable.
  • Most people only absorb about three key points from a speech.
  • What about those key points and how are they best communicated visually?
  • Remember that the visuals are used to emphasize important points, not to reproduce the speaker's notes.
  • Illustrate one topic per slide.

Determine your objective, are you instructing, informing or selling a product or idea?

  • Choose a font that is easily comprehended and large enough to be seen.
  • Do not use capitals. Upper and lower case is more easily comprehended.
  • Limit copy to 6 lines maximum per slide and 6-7 words per line.
  • Use the titles to make a statement, but keep them short.
  • Use a larger font font for the slide title, 36-point is the minimum.
  • Use color to highlight important points and add interest.
  • Use complimentary colors.

Consider the impact of different colors.

- Blue portrays calm and quiet, gives a positive feeling and is ideal for the background.
- Red is related to danger, alertness and problems, use it sparingly.
- Green is seen as restful, cool and assured.
- Yellow is warm and vibrant, it gives a feeling of energy.
- Use tinted backgrounds to reduce glare and aid concentration.
- Use light colors for text and for emphasis.
- The best text colors are white, light green, light blue etc.
- The eye is naturally drawn to yellow.
- More than 4 feature colors, including the background, can reduce comprehension.
- Use illustrations and diagrams that are relevant.
- Use symbols to draw attention to important points.
- Use dark colors for background and avoid gaudiness.
- Use color, rather than underlines, to make important points stand out.
- Avoid overuse of italics, dropped shadows, bold and color emphasis.
- Remember when using color, that 4 percent of men and 1 percent of women are color blind.
- Charts are an ideal way of conveying information and they should be used to emphasize a point.
- Line graphs show relationships over a long period of time.
- Bar charts show relationships over short periods of time.
- Pie charts show percentages.
- Organizational charts show structural relationships.
- Flow charts demonstrate the flow of data and processes.
- Gannt charts show time flows and interdependencies in projects.

Preparing the presentation:

  • Become familiar with the room and its layout.
  • Check seating and lighting and the data projector position for optimal viewing.
  • Before starting check the equipment and learn the controls.
  • Try and keep a spare data projector lamp (these are expensive though).
  • Focus the data projector and adjust to obtain clear images.
  • Go to a black screen when you are talking for a long period or using a white board.
  • Ensure that the audience have an uninterrupted view of the proceedings.

 Verbal presentation tips:

  • Speak clearly and use simple language, avoid complex sentences.
  • Involve your audience, challenge their preconceptions.
  • Ensure that the image matches the spoken text.
  • Use rhetorical techniques to maintain interest, change voice intonation and vary tone and volume.
  • Use pauses for effect.
  • Rehearse your presentation to get it right!

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These are some of the skills needed for successful negotiating...

  • effective speaking
  • effective listening
  • a sense of humor
  • a positive attitude
  • respect
  • self-confidence
  • emotional intelligence
  • persistence
  • patience
  • creativity
  • endurance

Without the above factors, negotiations will be difficult if not impossible. The necessity for negotiation arises because neither party will be able to get everything they want. Knowing that there must be concessions, each party in the negotiation is required to adopt an attitude of understanding that they must get the best deal possible in a way which is acceptable to the other party.

The importance of effective speaking and listening is clear; it is necessary to establish what you are looking for and what you are prepared to accept, while understanding what the other parties will be happy with.

A sense of humour and a positive attitude are essential because they allow for a sense of give and take. Negotiations can become fraught, and having the ability to see the other side’s point of view while being sanguine with regard to what you can achieve will be essential. Of course you will want as much as you can get – but the other side needs to achieve what they can, too.

Seriously uneven negotiations will simply lead to further problems along the line. An atmosphere of respect is essential. If you do not make concessions while demanding them from your counterpart, it makes for a negotiation which will end in dissatisfaction.

However important a sense of understanding for your "opponent" may be, it is also necessary to have the confidence to not settle for less than you feel is fair. Good negotiators understand the importance of balance. Yes, you will have to make concessions, but the point of making concessions is to secure what you can get – so you need to pay attention to your bottom line and ensure you are not beaten down to a minimum.

Knowing what is realistic, and ensuring that you can get the best deal, relies on being ready to insist upon something that the other side may not be willing to give initially. Emotional intelligence, persistence, patience and creativity can all play a part in this process!

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When you think about how to improve your business, the purpose is to gain and retain customers - not rocket science! To be competitive you have to plan for this, remaining and improving your competitiveness will be very difficult to achieve without a marketing plan, and this does not have to be a long drawn out exercise.

A marketing plan provides you with direction. It tells you how to develop, and how to improve your business processes that will satisfy customer demands, communicate the benefits of your products and services to your potential and existing customers, and guarantee customer satisfaction.

Marketing must shape the future, as well as delivering today. By sensing the emerging opportunities, market, product and service innovation drive future revenue streams, and brands and relationships make them more certain, you will begin to find out how to improve your business. Your plan should be such that it enables you to encourage people to want to do business with you.

Marketing is Every-one's Job

Everyone in your business is involved one way or another in marketing your products and services. They may not be actively involved in the planning process, or be directly responsible in finding customers , but they will all in some way be in a position to contribute to the success of your business in gaining and retaining customers and maintaining your competitiveness. For this reason, you, and your key staff, should have some understanding of what the process of marketing involves as it applies to your business.

Generate Marketable Products or Services

Do you have products, ideas, concepts, or services that you have screened and tested to ensure they will satisfy customer need and that are potentially profitable? Have you analyzed your products life cycle in order to predict it's sales pattern over a period of time? Do you continue to search for new products and services? If you don't have a durable marketing product, you will not build up and more importantly retain a customer base.

Profile your Competition

How well do you know the other businesses that compete for your customers? Who exactly are the competitors? What are their strengths and weaknesses? You should gather as much information as you can on their marketing and communication strategies, types of advertising, their products and services, prices, markets and how they take advantage of changes in the industry. Identify any areas in the market that are not filled by your competitor's products and services, and that could be exploited by yours. Remember your competitors will be watching you also!

Analyze Market Opportunities

Market research is essential. Assemble information about your business's current and potential markets, about the users (consumers) of your products and services, and about those areas where your business has the competitive advantage when it comes to introducing and improving and new products and services or entering new markets. This market profile should include your current and future market's size, growth potential, barriers to entry, key players and the existence of particular niches.

If your business is a small to medium business enterprise (SME), research tell us that almost 75 per cent of your customers will come from within a five kilometre radius of your business.

Target your Market

Based on the information you have gathered, and on the skills and resources of your business, you should now be able to select specific target markets. If you are not in the mass-marketing business (i.e. you don't offer your products to everyone out there), then you are in a position to pinpoint those segments of the market at which your products and services should be targeted.

Develop an Appropriate Marketing Mix

Your preliminary research will now enable you to consider the 4P's of marketing. This is the set of controllable variables that all businesses attempt to blend into the right combination to achieve the dominant position in the market place.

The four key factors are:

1. Price

2. Product

3. Promotion

4. Place

In the long run the success you have in addressing these four components will determine your ultimate success in the marketplace. Only objective research will give realistic feedback on customer needs and values.

Develop a Strategy for Publicizing your Product

If you have the products and services people want, and are prepared to pay for,then your next step is to bring these to people's attention. You will need to develop a strategy to address advertising and promotion of the products and services, new product launches, sales campaigns, ans distribution policies.

How can you get value for your advertising dollar? Are there more cost-effective ways to promote your product? Should you be using more that one method? With the exception of new products, look to promote and advertise over the 'lean' periods of the year to supplement otherwise low sales periods.

Review your Performance Regularly

Unless you monitor the progress of your marketing plan, you will run the risk of not finding out until it's too late that the plan is not working. Analyze and review sales results constantly to ensure targets are being achieved along with expectations.

Amend your plan accordingly in the light of your findings and analysis and you will find out how to improve your business!

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How many times have you been stuck when trying to come up with a budget or forecast for the next period (or next year). Well here is a quick budget template that you might find helpful in developing a quick snap-shot budget.

Below is an example profit and loss report for your business last year:

Budget Template Tool
So let's assume that is how your business finished up last year. Now you need an indication of what to expect from a profit and loss perspective for the next period/year. This is easy to do, all you need to know is what is your target sales or revenue number, once you have this you simply apply the same % to sales to each of the elements of the the new profit and loss.

See the example below on how to apply these percentages and make a quick budget:

Budget Template

 The result of applying these percentages can now be seen below in the snap-shot profit and loss.

Budget Template

So now you have a very quick way to achieve a snap-shot profit and loss for the upcoming business period using this budget template method.

Enjoy!

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