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How Do I Find My Small Business's Break-Even Point?

Oct 18, 2021 3:53:31 PM / by CSI Accounting Staff posted in small business accounting, small business operations

To succeed, your company must be profitable. When you own a small business, you need to be aware of your financial health, and this is done through tracking KPIs (Key Performance Indicators).

An important one that's easy to calculate on your own is your break-even point. In this blog, we cover:

  • What is a break-even point, and why is it important?
  • How do I conduct a break-even analysis?
  • What are other crucial KPIs, and how can I track them?

Blog - How Do I Find My Small Businesss Break-Even Point

What is a break-even point, and why is it important?

Your break-even point is the point in your production when you neither lose any money nor make a profit. It's immediately after this point when your business will start to become profitable. Your break-even point answers this one crucial question: how much do I need to generate in sales for my company to make a profit?

The SBA says that businesses should find their break-even point to:

  • obtain funding
  • analyze costs
  • evaluate profits earned at different sales volumes
  • prove their potential turnaround after disaster scenarios
How do I conduct a break-even analysis?

 

Calculating your break-even point is complicated because it fluctuates depending on variable expenses and profit margins, but you still need to track it as closely as you can. Use this formula:

Break-Even Point = Total Fixed Cost / (Average Price - Variable Cost)

SMALL BUSINESS PROFITABILITY CHECKLIST

This number will show you what you need to do to turn a profit. The SBA mentions these takeaways:

  • Price Smarter - Knowing how pricing will affect your profitability will help you price your products smarter.
  • Catch Missing Expenses - You can lay out all of your financial commitments, limiting surprises.
  • Set Revenue Targets - You'll know how much to sell to be profitable, so it will be easier to follow through.
  • Make Smarter Decisions - You'll limit decisions made on emotions and help you base things on facts.
  • Limit Financial Strain - Limit the financial toll of a bad idea through realistic analysis of potential outcomes.
  • Fund Your Business - It's usually required to take on investors or debt and proves that your plan is viable.
What are other crucial KPIs, and how can I track them?

 

This checklist covers seven basic KPIs you need to measure to ensure your business is profitable and in good financial health. The information will help you analyze your profits, streamline your operations, and improve efficiency. Each company is unique, which is why the KPIs we discuss are not meant to be definitive.

With this FREE checklist, you'll learn how to identify and calculate important metrics for your business, including:

business profitability checklist
  • break-even point
  • customer acquisition cost
  • customer lifetime value
  • gross profit
  • net profit
  • total revenues 
  • average revenue per employee
You can’t improve what you don’t measure. Download your copy here!

Ready to learn more?

Turning a profit is easier said than done. To boost your bottom line, you need to know your financial moves and KPIs at all times. If you don’t have time to do it yourself, partner with a monthly accounting service like CSI Accounting & Payroll!

We'll simplify your life and give you more time to focus on business operations. You'll get a profit and loss sheet, balance statement, and accurate account reconciliation every month, ensuring that you have the financial information to make the best choices for your company. Click the button below for a free consultation.

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CSI Accounting Staff

Written by CSI Accounting Staff

This article was composed by a member of our staff who interviewed our experts to get the facts straight. Any uncited information found here came straight from a knowledgeable accountant or payroll specialist.

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