stages of development - International Business Growth Radio Network

SHOW & CHAPTER 9: ESTABLISHING YOUR BREAKEVEN POINT - WILLIAM EASTMAN

18/4/2022

Managing Cash Flow starts with establishing a baseline for business operations - what is the bare minimum required to sustain you over time. Given the current state of the business, how much revenue is required to pay all bills on time over a defined period - a week, a month, a quarter.

Show Objective
Given a contracting economy with diminishing business opportunities and inflation devaluing the currency, we will show the need to strengthen the core of the business to not only survive, but thrive.

EPISODE 41: Summary
If you run a business that sells units the goal is to determine how many must be sold at a set price. On the other hand if you sell services, basically time, then it is how many hours must be sold at a set price. That is the basic formula and it becomes complicated when you have multiple product and service lines.

Here you need to estimate what percentage of revenue each line will contribute and using historical data is the safest place to start. Today's show won't get that complicated, if you can do the basic contained in today's show notes you'll be fine.

EPISODE 42: The Product Formula by Unit
The easiest of the calculations, it is the determination of the number of untils that need to be produced that will take you to breakeven - you made no money and lost none. Look at like a childs see-saw - where is the balance point the two ends - revenue and cost.

One of the areas this impacts is sales forecasting. It provides a baseline for sales targets of a specific period of time; a year, a quarter, a month, or week.

Topics:

Unit Breakeven = Total Fixed Costs / (Price per Unit - Total Variable Costs)
- Total Fixed Costs: Sum of all Nonvariable Costs (rent, leases, utilities, etc.)
- Price per Unit: Total Revenue from Sales / Number of Units Produced
- Total Variable Costs: Sum of all Nonfixed Costs associated with the Unit (materials, labor, commissions, marketing, etc.)

EPISODE 43: The Formula by Product & Service Lines
Computing by line is a little more sophisticated. It mease you sum the total of all the products or services within a specific line. For example you have a line of lawnmowers sold at your Home & Graden Center. You trying to determine how many in total you need to sell to breakeven and will help to decide if this is a product line you should carry.

The same is true for services.e a HVAC company and selling several different types of service contracts for the heating / ac units you sell and install. It will answer how many do you have to sell to breakeven?

Topics:

The Product Formula by Product Line: Product Line BE = Product Line Fixed Costs / (Price - Product Line Variable Costs
The Service Formula by Service Line: Service Line = Service Line Fixed Costs / (Price per Hour - Service Line Variable Costs)

EPISODE 44: The Service Formula by Hours
What if you run a service based company where you don't sell things, you sell time like coaching? You have the added problem of not being to sell lost time - like last week. If you sell products a promotion will work to get rid of excess inventory. When you sell time there is no promotion for selling last week.

When you compute breakeven for hours, go for a yearly number, then bresak it down into smaller units. What don't sell to make breakeven in the first month has to be added to the remaining 11 months, etc.

Topics: