What Is The Definition Of The Break-Even Point?
There are actually several break-even points I will deal with in this article. The first one is the month-to-month break-even point. To fully explain this first definition you must first understand another term called profit.
You started your business to make a profit. The amount of profit you receive is based on the success of the business.
It there is no profit, you don't get paid. Don't tell me that your salary is part of the break-even expenses of the business because that won't fly.
You can only take profit out of a business for your salary. You can include any employees you have as a salary expense but you can't include yours.
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When I started this web site, I had zero book sales to offset my expenses. At the beginning I had to assume all the expenses in the operation of the site.
As the site began to grow and books begin to sell, the amount of my personal investment begin to decline.
Soon I reached the second break-even plateau which is:
Cash In Equals Cash Out Break-Even
At this point you no longer have to subsidize the business. You should also be able to take a livable wage out of the business.
You still aren't making a profit yet because all profit is going toward your livable wage, but the business is on the threshold of making a profit.
Most people who reach this point are good managers and won't have their success denied. They have learned the expenses and challenges of their businesses inside and out.
This point must be reached before the owners cash contributions run out.
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Good News And Bad News
The good news is that once you've reached this point, the business can exist indefinitely. The bad news is, you've bought a job.
The business is maintaining itself and you have a livable wage but what about all the money you poured into the business during start-up? Is it gone forever?
What about retirement? Do you really want a business that you must personally maintain day in and day out for the next 40 years?
This brings us to the final break-even plateau and that is: Top : Home
From Day One To Today
You want to move from buying a job, to owning a business. You want to move past the livable wage to a respectable wage.
When the business reaches this point over a period of time the business should produce enough profit to reimburse the owner for all monies invested in the start-up of the business with assets left over.
These assets can be invested to produce additional income for the business and/or the owner.
Here is where business ceases to be a task or job and becomes fun and exciting. Top : Home
Plan Of Attack
How to break even? Here are some things to be aware of. Start one piece at a time. (See: How To Do A Break-Even Analysis) Calculate the break even point on every product or service you offer.
Eliminate any unprofitable items. Don't give your business away. Don't devalue your services or products just to get the business.
Look at every aspect of your business for ways to reduce expenses without sacrificing quality or customer service. Look for ways to increase profits.
Take advantage of discounts whenever possible. (See: How To Control Expenses And Increase Profitability)
Look for ways to promote your business at little or no cost. (See: How To Get Publicity For Your Home Based Business)
The most powerful weapon against expenses is a satisfied customer who buys over and over again. (See: Customer Service: How to get first time customers to come back)
The break-even point in not beyond your control. You control what happens in your business. The break-even point is a goal, just like any other goal.
Set specific objectives and strategies to meet this goal and move on toward big profits.
Return to the "How to Start a Business" Directory
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Based in Bozeman, MT, Tom Egelhoff is the author of How To Market, Advertise & Promote Your Business Or Service In A Small Town, and The Small Town Advertising Handbook: How To Say More And Spend Less. He is also a seminar and workshop presenter and trainer. He may be reached at 406-585-0219 or PO Box 271, Bozeman, MT 59771-0271
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