On many occasions, entrepreneurs complain that they do not have profits, that their sales do not grow, that their expenses are very high, but the reality of the business is unknown.
Knowledge of the practical breakeven point is a very valuable instrument to quickly detect if the business wins or loses, if the profits are as expected or if it is necessary to implement a strategy to prevent the months is when the company operates below the equilibrium point.
More than 90% of the entrepreneurs or small business owners in the country do not know their equilibrium point in money, and in the necessary days of work to reach it.
The formula is quite simple: "Fixed expenses between gross margin on sales". To show its effectiveness and use, some examples are presented:
Example 1
1. A grocery store increases its products to 30% profit, that is, it sells for $ 13 a product that costs $ 10. Its expenses (electricity, telephone, rent, water, wages, etc.) are approximately $ 10,000 per month. How much do you have to sell to get "tables" ?:
a) To detect the Gross Margin on Sales, we need to divide 30% by 1.30 and obtain: 23%.
b) The break-even point will be the product of the division of $ 10,000 by 23%: $ 43,478.
The conclusion is as follows: as long as the company behaves with the same premises of expenses and margin, with selling $ 43,478, it will neither win nor lose.
Example 2
2. A variant to the previous example. Suppose the entrepreneur wants to have a $ 3,000 monthly profit free of straw and dust. How much do you have to sell now to get that amount monthly ?:
a) What has to be done is to combine the item of expenses ($ 10,000) with the expected profit ($ 3,000) and divide it by the gross margin on sales (23%): $ 56,522.
b) The conclusion is that until the entrepreneur manages to sell at least $ 56,522 monthly, the profits will not be what he expects.
As can be seen in the two examples, managing these simple finances allows you to make more objective sales, expenses or costs decisions and to know the sales levels that are above or below the break-even point.
The greater the accuracy of the information, the less dispersion and risk are involved.
I suggest that you carry out this exercise with different scenarios: increasing the margin or decreasing expenses. It is important that you know how each peso that you save in expenses affects the profits of the company.
