Breaking even – a moveable feast
In our previous newsfeeds we have described how you can calculate the level of turnover you need to create in order to meet all your costs whether they be fixed costs (rent, rates etc.,) or variable costs (goods you need to buy to convert into goods you sell).
Unfortunately, you will need to make this calculation each month to have any certainty that you have a realistic estimate of your breakeven turnover.
Over time, you could probably place more reliance on any underlying trend in the numbers you calculate.
The main factors that will change your breakeven calculations are increases or decreases in:
- The amount you pay for any direct costs, to purchase goods or labour to convert into the products you sell.
- The amount you pay for fixed costs – that do not tend to increase or decrease based sales volume. For example, premises costs, professional fees and admin support costs.
And what if you need to invest in your business? If you do not have retained funds to meet investment costs you may need to borrow to fund the investment. This will increase your costs (interest charges) and require that you produce enough retained profits, as a result of your investment and general trading, to meet lending repayments.
We can help. Call if you need help to consider your planning options. To find a way out of the present difficult trading conditions we may all need to do more than just breakeven.
