Start up Business Series: Breakeven
Date: 03/07/19 | Author: Sean Toomer
For the breakeven point in a small business startup, you don’t need a degree in economics nor do you need to know any complicated formulas. Just a bit of good planning and knowing your costs, which we’ll map out in this section.
What is your Breakeven and why is it important
Your breakeven is when your sales equal your costs. In other words, when you’ve covered your costs, met your obligations, washed its face, or some other slang term you may have heard down the pub.
It’s important, because you need to know when you’re in profit. You need to know how much money you need to make or products to sell in a day/week/month to cover your costs - or you’ll be in a poor cash flow situation.
You need to know this so you can put a marketing plan in place to produce the above magical number.
How to calculate your magic number
How you represent this will depend on your business and it’s model. If you’ve got a weekly model, you’ll want this per week (we need to sell £X per week). If you’re selling a product, you may want this represented by number of units (We need to sell X number of widgets per day).
Or you can do all of these and have many magic numbers. So you know how much you need to make per hour, per day, per week and per month in order to cover costs, and also what this means represented by number of products.
To actually calculate your magic number, use our handy template which can be found here.
Why are you calling it a Magic Number
Because it’s the most important number you need to know, and you need to know it by heart.
If at any time your business isn’t performing to this number, you need to take immediate action, because this is can indicate you can’t cover costs.
What to do now?
Calculate your Break Even and know your Magic Number.
Don’t forget, look out for our next blog in the series: Business Plan
If you missed our previous blog in the series, Suppliers, take a look here.
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