What’s your company’s breakeven point?

The figures on an income statement report the sales, expenses, and net profit or loss of a business. But these figures can be helpful in another way. They can be used to compute the breakeven point for the business. Knowing your breakeven point can help you run your operations more efficiently and profitably.

Simply put, the breakeven point is the sales volume at which the business generates just enough revenue to cover its expenses. While a business that’s breaking even doesn’t have a profit, it’s not losing money either.

* How to determine breakeven. To calculate your breakeven point, you’ll need to know three things: sales, variable costs, and your total fixed costs. Variable costs are those that fluctuate with the number of items sold, such as the cost of materials and sales commissions. Within limits, fixed costs do not fluctuate with sales volume (i.e., rent, insurance, and property taxes).

* Calculating the breakeven point involves two steps. First, it’s necessary to figure out the amount left over from each sales dollar after the variable expenses have been subtracted. This is known as the contribution margin. Then the contribution margin is divided into your fixed expenses to get the breakeven point.

* How to use breakeven. How can you benefit from knowing your breakeven point? First, you’ll be able to manage your business better once you know the sales volume needed to turn a profit. Second, by monitoring your sales, you can accurately predict whether you’re on course to reach your profit goals. Third, you’ll be able to take corrective action more quickly.

There are other benefits too. Using breakeven analysis, you can calculate the sales volume you’ll need to cover the costs of a proposed new product or service. Plus, if you have a desired profit, you can add it to your fixed expenses and calculate the precise sales volume you need to achieve that targeted profit.

Call us if you would like assistance in using breakeven analysis to improve your business.

About Brenda J. McGivern, CPA

Brenda McGivern started her own certified public accounting and management consulting firm in October 2001. The full service CPA firm provides tax and accounting solutions to meet the needs of today’s small business and individual. Brenda McGivern has become a trusted advisor and valuable resource her clients rely on for timely, accurate assistance when they need it.

Before starting the firm, she worked as an accountant for three years at a local firm and prior to that five years at a large international CPA firm in Boston. She has performed the following tax services: federal, state and local tax planning, international tax planning, estate and succession planning, mergers and acquisitions, capital retention and IRS representation. She has also coordinated assurance engagements, such as financial statement audits, reviews and compilations from the planning phase through the reporting phase. She has prepared and reviewed regulatory filings for numerous regulatory agencies including the Security and Exchange Commission.

Prior to these positions she was selected from over 2,000 candidates into an eight-person intensive financial management program at an international technology company. The program consisted of graduate level classroom study and two six-month rotational assignments in financial operations.

She graduated cum laude from the University of Massachusetts at Amherst and holds a Bachelors Degree in Business Administration with a concentration in accounting. McGivern also holds a license in Massachusetts as a Certified Public Accountant and is a member of the American Society of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. She resides in Stoughton, Massachusetts with her husband Brian, and their sons Sean, Ryan and Conor and their dog, Davis.

This entry was posted in Business, Financial Planning, New Business, Operational Accounting and tagged , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply