FINANCE
COACH
Purpose of this Webinar
How solid is your Financial Education?
Welcome to the Webinar
“Understanding
your Break Even
Point…”
Break Even:
“Why do I need to
know my Break Even
Point?”
Why do I need to know?
Here are some example decisions that you need to make, where having a knowledge of Break Even is VITAL:
• Are we operating profitably?
• What is the minimum sales we need to make each day, each month, to make it worth ‘opening our doors’?
• Are we selling at the right price? Or should we be discounting? Or putting our prices up?
• Are our staff operating efficiently? Are we managing them in such a way that there is a decent return on their time?
• Will we be able to get out of debt?
• Will we be Cash Flow positive? Will we be generating Cash?
Break Even:
What is the difference between SBM and SBE? During this week we refer to both.
Sustainable Business Model (SBM) – this was used at the seminars to demonstrate a quick method of checking the sustainability of the financial ‘model’ that the business has. It can be used to check the efficiency of the financial management in the business.
Survival Break Even (SBE) – this is a business planning tool (formula) that is used to arrive at the minimum sales figure that the business needs to
Break Even:
Survival Break Even Sales
is the level
of sales you require, at a predetermined
GP%, to cover:
•
COGS
•
Overhead Expenses
•
Loan Repayments
•
Tax
•
Owners’ Remuneration
Break Even:
Break Even:
This graph shows costs that we have to pay, whether we make a sale or not:
Break Even:
Break Even:
Break Even:
This graph shows Break Even Sales being reached:
What is happening at this point?
1. Fixed overheads and COGS are paid for
2. Variable COGS are paid for
3. Tax is paid on profits
4. Loan Repayments are paid for
5. Owners receive remuneration
Sustainable Business Model
:
Are you in the dark as to business
targets?
Many businesses have gone broke
because the business owner and
management team failed to
understand what sales where
required to ensure prosperity.
…introducing:
Sustainable Business Model:
The SBM formula:
Wages (Incl Owners’ Remuneration)
Extra Employment Expenses
Total Employment Cost
Other Operating Costs
TOTAL
Occupancy Costs
$ 600,000
.
120,000
720,000
.
360,000
$ 1,080,000
.
220,000
Fixed & Variable Costs:
Fixed & Variable Costs:
As sales increase, variable costs increase but fixed costs do not.
SALES FIXED COGS VARIABLE
COGS TOTAL COGS GROSS PROFIT £ 25,000 £ 25,000 £ 10,000 £ 35,000 Loss £ 10,000
50,000 25,000 20,000 45,000 Profit! £ 5,000
75,000 25,000 30,000 55,000 20,000
Fixed & Variable Costs:
In the ‘real world’ fixed costs usually are only fixed to a certain level, and then they step up:
Fixed & Variable Costs:
As sales increase, variable costs increase but fixed costs do not.
SALES FIXED COGS VARIABLE COGS TOTAL COGS GROSS PROFIT
£ 25,000 £ 25,000 £ 10,000 £ 35,000 Loss £10,000 50,000 25,000 20,000 45,000 Profit! £ 5,000 75,000 25,000 30,000 55,000 20,000 100,000 25,000 40,000 65,000 35,000 125,000 50,000 50,000 100,000 25,000 150,000 50,000 60,000 110,000 40,000
