How to Do a Breakeven Analysis and Improve Profitability
08 May 2015
Managing profit and loss is all about managing the relationship between costs, volume and pricing. Breakeven is a tool that can help business owners and managers gauge the results of future changes to costs (expenses) or pricing.
A breakeven analysis focuses on two types of costs – fixed costs and variable costs – and how changes in either affect profits. By using the break-even tool, we can map changes to costs and/or pricing to the corresponding changes that are required in sales volume if a given level of profit is to be maintained.
Why is the simple calculation of breakeven so important?
Used correctly it can provide information that:
- Leads to better pricing strategies
- Demonstrates the full impact of discounting and what it really costs you
- Improves variance analysis and your ability to manage risk.
Sounds like the silver bullet that all business owners need, so why aren’t more businesses taking the time to use it correctly?
In our experience up to 75% of business owners do not know their breakeven point in terms of sales dollars or volume. Those that claim to know their breakeven point, often have an incorrect estimate and are not using it to maximum
Passionate About Business
Questions about accountancy, advisory, tax? Get in touch with us today.
Contact UsOur Latest Insights
Understanding the Shareholder's Current Account
The shareholder’s current account is often one of the most important financial accounts in a company, yet many business owners are unsure of how it works. This guide simplifies the key concepts and provides clarity on how to manage your account effectively, especially in cases where the company owes you money or you’ve withdrawn funds.
Using KPIs to Drive Financial Success
Key performance indicators (KPIs) give business owners a clear view of financial health and direction. This article explores how tracking the right KPIs can simplify decisions, prevent costly mistakes, and drive lasting success.
Provisional Tax Due 28 August – Are You Prepared?
Is your business ready for the 28 August provisional tax deadline? Here’s what you need to know to avoid penalties, manage cashflow, and explore flexible options like tax pooling.
Cancelled Land Sales and GST – What Happens to the Deposit?
Cancelled a land sale before settlement? Inland Revenue’s latest guidance confirms that GST is not payable on forfeited deposits. Here’s what vendors, purchasers, and advisers need to know.