Yes, this is my first blog post since January – I am embarrassed. Tax season, then life (read: kids out of school for the summer) did a phenomenal job of derailing the best of intentions to start blogging more regularly. This is going to be the first in what I hope will be at least bi-weekly #tastytuesday blog posts, so if there are any topics you’d love to learn about, please let me know and I will get working!
Anywho, my subject this week is breakeven. Do you know what breakeven is? Or, an even better question, do you know what YOUR breakeven is for your business? Generally, people seek my services for one of two reasons – they need to file some kind of business tax return to stay compliant, or, they haven’t been filing and one of the tax agencies are looking for a return to get them into compliance. While I love taxes as much as the next CPA, it’s just not an area where I feel like I can really add value, as I am mainly dealing with historical information, and we can’t take any action to change the past. However, with some clients, I keep their books for them monthly, and with this, we can do all kinds of fun stuff that can help a business owner in real time, like breakeven analysis!
Per Investopedia.com: Break-even analysis entails the calculation and examination of the margin of safety for an entity based on the revenues collected and associated costs. Analyzing different price levels relating to various levels of demand, an entity uses break-even analysis to determine what level of sales are needed to cover total fixed costs.
What does this mean in English? Well, using an average of all your business’s costs over the most recent twelve months, I figure out how much it costs to run your business on a monthly basis. I can even include an amount you may want to be paying yourself on a monthly basis or amounts you may want to save to build working capital reserves. I then figure out what your sales need to be each month to cover all that. Neat, huh? I find that many business owners *think* they know what their breakeven figure is, but when I tell them what it actually is, it ends up being much higher than they thought. Imagine you thought you needed to hit $20,000 a month in revenues to breakeven, but you really needed to hit $22,000? While that doesn’t seem like a major difference, after a few months that shortage will really start to add up, and you will quickly find yourself struggling to stay afloat. No bueno, right? Right.
So yes, I do prepare taxes, happily. But, to be able to help an owner take financial control of their business and make informed decisions that will help them become profitable? That is just the best. If you are interested in learning more, please fill out my contact form and we can set up a time to chat!