When you start a business, one of your priorities will be to make enough money to break even.

Yes, you have to spend money to make money, but this can be a risky way to do business if you don’t know what your break-even point is.

The break-even point is marked by the number of jobs you need to complete to cover your operating costs. Once you’ve reached your break-even point, you’re no longer losing money and your business is officially turning a profit. It’s an essential part of any business plan.

The most effective way to calculate your break-even point is by doing a break-even analysis. This looks at your fixed and variable costs and how changes to these costs affect your profit. It will tell you whether you need to look at changing the cost of your services so that you can make a profit, or at least break even. It’s a crucial calculation for any business owner as it will help inform many decisions that support business growth.

Follow this clear and easy how-to guide to calculate your break-even point.

Why a break-even analysis is so important

Calculating your break-even point is a fairly simple calculation – but it’s something that many business owners fail to do. When done correctly, it can be used to:

• • • Price smarter. Several factors go into figuring out how much you charge for each of your services, including your hourly charge-out rate. Finding your break-even point will help make sure you’re charging enough to make a profit.
    • Manage financial risk. Whether it’s a not-so-good business decision or a slow month of work, doing a break-even analysis will help you avoid the financial risk that could put your business in the red.
    • Cover fixed and variable costs. Some of your expenses will move up and down depending on the labour and materials required. These are variable costs. But some expenses will stay the same no matter how many jobs you take on. These are your fixed costs – the background expenses that business owners tend to forget.
    • Make informed business decisions. Need to invest in a new work vehicle or piece of equipment? It’ll be easier to make those types of decisions with useful data like your break-even point in front of you.
    • Set revenue targets. Knowing exactly how much you need to earn to run a profitable business will help you set clear financial goals – and estimate a realistic sales forecast.

The formula for breaking even

Here’s how to calculate your break-even point:

Fixed costs / (Average sale price – Variable costs)
= Break-even point

Your break-even point is equal to your fixed costs, divided by your average sale price, minus variable costs. The second part of this equation (average price – variable costs) is also known as the contribution margin. This number tells you how much cash you have leftover to go towards your fixed costs.

To break this calculation down further:

1. Gather your data – Make a list of every single expense you pay to run your business – including the cost of materials and labour, petrol, equipment, system fees, insurance and marketing costs.
2. Identify your fixed costs – These are costs that stay the same and are ongoing – regardless of how much you earn (generally, most of these expenses run monthly). Add these costs together. It can be a good idea to add a 5-10% buffer here to cover any unforeseen expenses.
3. Identify your variable costs – These are costs that can vary based on the number of jobs you win, for example, materials and labour (if you pay another contractor for time worked). Adding these sums together can be a little trickier. Try tracking your variable expenses over a quarter and calculate an average monthly cost.
4. Decide on an average price – This will depend on your pricing structure. If you have fixed rates for different jobs, you can calculate an average price. Alternatively, you might take an average value of the number of hours you work per week.
5. It’s time to do the math – Now, all that’s left to do is plug in the numbers. The sum of the equation is how much money you need to make before you start earning a profit.

Here’s an example:

• Fixed operating costs: $5,000 per month
• Variable expenses: $1,500 per month
• Average price: $2,500 per job
  • $5,000 / ($2,500-$1,500) = 5 jobs per month

Make adjustments where required

To improve your profitability, you might decide to reduce your expenses, increase your rates or offer add-on services. See what happens if you adjust some of the numbers in the equation. What makes you more or less profitable?

Things to keep in mind when doing a break-even analysis.

A break-even analysis is a great tool for business owners and it plays an important role in how you make decisions, but it isn’t fool-proof.

• Multiple services with multiple prices. Many tradespeople don’t have an ‘average price’ – the cost of a job depends on labour and materials. You might need to work with one job at a time – and calculate a break-even price for each type of job.
• When prices fluctuate, so do costs. This model assumes that only one thing changes at a time. Instead, if you lower your prices but win more work, your variable costs might change because you’re able to work more efficiently with another employee. Ultimately, it’s only an estimate.
• Demand isn’t stable. A break-even analysis won’t tell you what your sales are going to be, only how much work you need to win to run a business that doesn’t cost you money. Any adjustments you make in your prices will in some way affect demand.
• Ignoring time and competitors. It’s not unusual for your work to fluctuate seasonally or for changes in the market to affect your pricing and sales. A break-even analysis will give you a good understanding of what your baseline is but will need to be used in conjunction with good cash flow management and sales forecasting.
• Don’t forget expenses. Your break-even result will only be as good as your data. That means accurate expenses are crucial for a reliable break-even analysis.

Measuring your margin of safety

Think of a break-even analysis as a safety net. It tells you how many jobs you must win to cover the fixed and variable costs of running a successful business. To ensure you’re always making business decisions based on the most accurate information, update your break-even analysis regularly.

It is only an estimate, but for new tbusinesses, it’s a great way to gauge when you might be able to break even – and turn a profit.

The following content was originally published by Tradfy. We have updated some of this article for our readers.

Keeping up-to-date records of your business transactions isn’t the most glamorous part of being an entrepreneur, that’s for sure.

But, in reality, having accurate and up-to-date bookkeeping is actually one of the core ways to keep your finances (and your business) under control

Digital bookkeeping is the future of your finance

The digital age has revolutionized the way many business owners carry out their bookkeeping. From digital accounting to real-time data, the modern bookkeeper is now equipped with the tools and resources to make the job easier, more efficient and (crucially) less time-consuming.

When your bookkeeping goes digital, that means:

• • • Your data entry process gets automated – receipts, invoices and other supporting documents can all be scanned using OCR software. This gives you a digital copy of the paperwork, but also digitizes the data and pulls it into your online ledgers. There’s no need for tedious manual data entry, and you also reduce the chances of human error.
    • Your digital records are available 24/7 in the cloud – instead of searching through messy hard drives or dusty filing cabinets, all your financial documentation is available at the press of a button. You can pull up the documents you need at any time of day, from any location with internet access. And everything is safely encrypted and backed up.
    • Your tax returns can be filed digitally – with all your bookkeeping data saved and accessed via your cloud bookkeeping/accounting software, your tax returns become a lot more straightforward. Whether it’s quarterly GST/VAT returns or annual corporation tax returns, you have all the data the tax office needs, ready to send in a digital format.
    • Your finance data goes real-time – scanning and digitizing your receipts at the time you make the transaction doesn’t just keep your records up to date. It also gives you real-time data on all your income, expenditure and operational costs. Instead of working with management information that’s months out of date, you have informative real-time data on which to base all your big business decisions.
    • You’re 100% in control of your finances – by embracing the benefits of digital bookkeeping, you kick your finances into shape. You and your finance team have accurate real-time records of all income and outgoings, and can stay in complete control of the financial management of the business. Your accounts are in tip-top shape and you’re ready to file your tax returns at every significant period throughout the year.

Talk to us about switching to digital bookkeeping

If you want to transform your bookkeeping, now’s the ideal time to go digital.

Talk to our team and find out what bookkeeping or accounting software is right for your business.

Once you see the efficiency, accuracy and long-term benefits of digital bookkeeping, you’ll understand why going digital is a no-brainer, whatever type of business you run.

Many entrepreneurs will have:

1. 1. Visionary mindset – entrepreneurs possess the ability to envision future opportunities, set ambitious goals and develop a clear direction for their ventures.
   2. Resilience – successful entrepreneurs are good at bouncing back from failures, persevering through challenges and maintaining a positive mindset.
   3. Adaptability – entrepreneurs are usually highly flexible and open to change, helping them to adjust their strategies and business models to changes in the market.
   4. Risk-taking propensity – willingness to take calculated risks is crucial for entrepreneurs, allowing them to seize opportunities and drive innovation.
   5. Strong leadership skills – entrepreneurs inspire and motivate their teams, effectively communicate their vision and make sound decisions in dynamic business environments.

Talk to us about boosting your entrepreneurial skills

Does this sound like a description of you? Perhaps you relish the possibility of taking a calculated risk as an owner but feel your leadership skills are somewhat lacking. Or maybe you have immense vision for your business but find it difficult to deal with the highs and lows.

Whatever your current entrepreneurial skill set, we can work with you to refine and boost your abilities as a business leader. Working with a business mentor not only helps you push yourself to do better, but also lightens the load of being the sole captain of the ship.

Get in touch to talk about business mentoring.

The following content was originally published by BOMA. We have updated some of this article for our readers.

Do you dream about starting our own business? And, can anyone become an entrepreneur?

When you look at the research, there are certain aptitudes, personality traits and business skills that tend to make you a more successful entrepreneur. But can you learn these skills? Or are these innate abilities that some entrepreneurial people are just born with?

Let’s take a look at what makes a good entrepreneur.

What drives someone to become an entrepreneur?

There are upwards of 582 million entrepreneurs in the world. But what drives these people to start their own business? And why do so many reject the traditional path of a career as an employee in someone else’s company or organization? On the whole, it comes down to three core drivers: freedom, passion and opportunity.

Respondents in recent research from Search Logistics gave their top three motivations on becoming an entrepreneur as follows:

• • • Being their own boss – 55% of entrepreneurs were motivated by the freedom of being the boss and stepping away from being an employee in the usual corporate structure.
    • Pursuing their passion – 39% of entrepreneurs wanted to pursue a passion in a specific industry or niche, allowing them to follow an interest that’s close to their heart.
    • Taking advantage of an opportunity – 25% of entrepreneurs made the leap to starting a business because the opportunity presented itself, and they took the risk.

The particular motivations which drive someone to found their own company are different for each person. But a desire for freedom and opportunity very often sit at the heart of the decision.

What are the key traits of a successful entrepreneur?

Entrepreneurs crave freedom and have a passion for grasping opportunities and turning them into workable and profitable business models. But are there specific character traits that make you more likely to take this entrepreneurial leap?

Every entrepreneur is unique, but there are some general characteristics that are likely to be found within a group of motivated entrepreneurs and business founders.

Many entrepreneurs will have:

1. 1. Visionary mindset – entrepreneurs possess the ability to envision future opportunities, set ambitious goals and develop a clear direction for their ventures.
   2. Resilience – successful entrepreneurs are good at bouncing back from failures, persevering through challenges and maintaining a positive mindset.
   3. Adaptability – entrepreneurs are usually highly flexible and open to change, helping them to adjust their strategies and business models to changes in the market.
   4. Risk-taking propensity – willingness to take calculated risks is crucial for entrepreneurs, allowing them to seize opportunities and drive innovation.
   5. Strong leadership skills – entrepreneurs inspire and motivate their teams, effectively communicate their vision and make sound decisions in dynamic business environments.

Talk to us about boosting your entrepreneurial skills

Does this sound like a description of you? Perhaps you relish the possibility of taking a calculated risk as an owner but feel your leadership skills are somewhat lacking. Or maybe you have immense vision for your business but find it difficult to deal with the highs and lows.

Whatever your current entrepreneurial skill set, we can work with you to refine and boost your abilities as a business leader. Working with a business mentor not only helps you push yourself to do better, but also lightens the load of being the sole captain of the ship.

Get in touch to talk about business mentoring.

The following content was originally published by BOMA. We have updated some of this article for our readers.

As environmental consciousness rises, small businesses in 2023 face increasing pressure to adopt sustainable practices and reduce their carbon footprint.

But going green means being able to balance your desire to run a sustainable, environmentally conscious business with the pressing need to remain economically and strategically viable.

Meeting the environmental expectations of your core customer base

Globally, 85% of consumers have become ‘greener’ in their purchasing in recent years, driving a green sea-change in how companies large and small run their business operations.

Most consumers want to buy sustainable products and packaging. It’s a change that will take a concerted effort and strategy, but the end results will be better for the planet and your customers.

To become more sustainable:

• • • Carry out a company-wide environmental audit – do you know what your environmental impact is as a business? Carrying out an environmental audit helps you identify the areas where you can improve your energy consumption and waste reduction.
    • Look out for green partnerships – there will be plenty of other business owners wanting to become more green. So, why not collaborate with eco-friendly suppliers, vendors and partners to align your business with green, sustainable values.
    • Offer eco-friendly products/services – offering environmentally responsible products or services helps you attract environmentally conscious consumers. It’s good for your brand and drives a greener reputation for your company in the marketplace.
    • Be more transparent about your eco credentials – talking about sustainability and green values is important. By communicating your sustainability efforts, and being seen to drive change, you build trust and loyalty with environmentally aware customers.
    • Tie sustainable choices into cost-effective solutions – choosing to implement sustainable practices can also lead to cost savings, by reducing waste and operating in a more lean way. So, the planet wins, and so does the company’s cashflow. It’s a win-win scenario.

With climate change ever more visible, there’s a real imperative for businesses of all sizes to play their part and become better, greener and more sustainable enterprises.

We’ll help you review your operational practices to find the best opportunities for choosing green products, cutting back unnecessary waste and reducing your carbon footprint.

Get in touch to talk about your green strategy.

The following content was originally published by BOMA. We have updated some of this article for our readers.

As a business owner, the idea of taking a holiday might be far from your mind — you might not have taken one in years.

After all, you’ve got a business to run and that can mean working around the clock. It’s pretty common for business owners to forgo a holiday, but while we agree that business is (obviously) very important, so is taking a break.

It’s not as easy to go on holiday as it once was — you’ve got jobs to track, staff to manage, bills to pay, and customers to please. People expect 24/7 service these days. You can’t just pack up the toolbox and head out. But with a bit of planning, it is possible … and it’s more important than you might think.

1. Why it’s important to take a break

Business owners are usually pretty quick to say they don’t need a break. But here’s why a holiday is good for you, your family – and your business.

• • Gives you time to reflect: Have things in your business been stressful or not working the way you’d like them to? Taking time out is the best way to get a different perspective or find a solution to a business problem.
  • Can inspire new ideas: Sometimes a change of scenery is just what your mind needs to wander – and grow your business. Who knows what new ideas you might have while sitting on the beach with a cold beverage in hand?
  • Sets an example: You’re the boss – your team looks up to you. If you never take a break and are always stressed and tense, your team will follow suit. Lead by example, find a healthy work-life balance and make sure you take regular breaks to reset. That way, your team will do the same – and your workloads will be more sustainable.
  • Improves your health: Life as a business owner is mentally demanding. Throw in the daily duties of a tradesperson, and it’s just as tough physically. Taking a break will give your body some much-needed rest – so you can come back feeling mentally and physically refreshed.
  • Shows faith in your team: You might be nervous that your team can’t cope without you. Handing over the reins for a week or two will empower them – and benefit your business long-term. After all, you’re going to have to step back at some point…

2. How to prepare for your holiday

To make sure things run smoothly while you’re away, there are a few things you’ll need to get in order:

• • Plan ahead: As important as it is to take a decent break, you probably don’t want to go during your busiest time of the year. The further ahead you plan, the more prepared you and your team will be.
  • Identify potential problems: Make sure your team is clued up on potential hazards that could arise while you’re away. Go over your health and safety plans for current jobs and be sure they know how to fix equipment if it breaks or what to do in an emergency.
  • Have procedures in place: Even if you think you’ve got everything under control, things can still happen. Your staff must understand how to manage without you if someone calls in sick, there’s been a break-in, or how to deal with a difficult customer.
  • Set the expectation: Before you go, make it clear what kinds of things (if any) you’ll respond to while you’re away. Setting clear boundaries will mean your team doesn’t disrupt you unnecessarily.
  • Appoint a replacement: You’ll need someone in charge while you’re away to manage the day-to-day running. Appoint someone you can rely on who is up to the job. Your holiday could provide a good opportunity for someone to step up and prove themselves.
  • Delegate jobs: You’ve got a lot on your plate as the boss. Once you’ve appointed someone to fill your boots, delegate jobs to staff so every team member knows what you expect of them.
  • Organize ‘out of office’ emails: When you run the show, you’re usually everyone’s main point of contact. Don’t leave them hanging for a week or two. Set up an automatic out-of-office email to explain who they can contact instead and when you’ll be back.

3. Holidaying as the boss

You’ve made it to your holiday – you pour yourself a well-deserved drink, change into your party shirt… and think of nothing but work. A holiday is a bit pointless if you never completely switch off. Most people take a couple of days to fully relax. Here are our tips to help you switch off so you can get the most out of your break.

• Turn your phone off: If turning off your phone for a whole day gives you sweaty palms, try it for a few hours to start with. The most important thing is that you do turn it off for at least some of the time. It’s your holiday — if you’ve prepared the business, then you don’t need to be contactable 24/7.
• Clear your head: You’re on holiday – the last thing you want to be thinking about is paying invoices or finishing a job. It can be hard to do, but the sooner you can relax and clear your mind, the quicker you’ll be able to enjoy your break. Take a book to read, make dinner plans, go sailing, cycling, or sightseeing for the day. Whatever it is that takes your mind off work, know that it’ll make you more productive on your return.
• Don’t feel guilty: It’s important to spend time with your family, and friends, as well as some alone time! It’s also crucial for the growth of your business. Remind yourself why you booked the holiday in the first place, and don’t let pangs of guilt take over. Your team will be fine without you, and your business will be better off in the long run.

4. Take a break – for yourself, your family, and your business

It’s common for business owners to go without a holiday in fear of their business falling apart without them. In reality, the complete opposite is true. Taking a holiday empowers your staff and sets a healthy example. It’s also vital for your health. See for yourself — take a break and go back to work refreshed, rejuvenated, motivated, and full of new ideas to grow your business.

The following content was originally published by Tradefy. We have updated some of this article for our readers.