An episode of the popular ABC TV show “SharkTank” presented the opportunity to focus on a critical area of a business – its breakeven point. Business owners seeking venture capital on the Shark Tank program could not effectively present their breakeven point. This is all too often the case for business owners. Some startups and business owners have never heard of their breakeven point, or do not have a clear understanding of how to come up with the figure it represents.
This might astonish many who are versed on business planning and developing enterprises. Unfortunately, since there are so many startups annually, many of these individuals are not getting the training necessary to develop these core business competencies.
Breakeven Point
The breakeven point refers to the minimum amount of money a business must make to cover its monthly expenses. If you are paying out more than the company is generating, then you are not breaking even. Of course, if you are making more money than is needed to pay your monthly expenses, then you are “Cash Flowing”. Remember, “Cash is King”.
This is vital to whether your business can be operational or not. If you are consistently operating below this point, you must consider alternatives. If you are not careful, your business could turn into an expensive hobby. You did not go into business to be consistently putting money down the drain. Knowing what the breakeven point is for your business will help you strategize on how to increased sales.
Breakeven Analysis
You cannot always be putting your own money into the business. It should be paying you. In order to make changes, you must address the areas of your business that are affecting your bottom-line. For you to come up with your breakeven point, you must complete a comprehensive “Breakeven Analysis”. Once you do, you will have a dollar amount to keep in mind that you must make monthly in order to survive.
| Cash Flowing | Breaking Even | Not Breaking Even | |
| Sales | $5,000 | $5,000 | |
| Expenses | $4,000 | $$5,000 | $6,500 |
| TOTAL | $1,000 | $0 | ($1,500) |
The above example shows that the breakeven point is $5,000.
The breakeven analysis should take into consideration your products and/or services, cost of goods, along with all fixed and fluctuating expenses. This can be found by reviewing and updating your cash flow projections. This will give you a baseline to use in order to come up with that monthly amount you must make to breakeven point.
The breakeven point is the most important aspect of your business and financial plan. If you need additional training or resources, check with your local area S.C.O.R.E. office, Small Business Development Center or Women’s Business Center.
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