Breaking even in your business

It’s always a good to know the costs of your business. But how can you be sure you sell enough to cover costs. The answer is relatively simple, using the notion of breakeven.

First, you need to know the fixed costs of your business. These are the one you incur even if you business is not selling e.g. rent. Then, you need to know the cost of one of your products or one delivery of your service. This might not be as easy as it sounds, but try you best. Now you can deduct these costs from you selling price and work out a profit per unit. You can then work out the sales level at this profit which is needed to cover the fixed costs. Anything beyond this and you’re making a profit. You can apply this same principle to new products too. Being a relatively simple technique, been able to calculate a breakeven point is a very useful tool for any entrepreneur.



About martinjquinn

I am an accounting academic, accountant and author based near Dublin, Ireland.

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