Break-even point – Business 101 that’s often forgotten

Cameron Tulloch

Small Business Consultant

Halton Small Business Centre

This week I’d like to discuss a fundamental analytical tool for business management – the break-even analysis. For years, a staple of my consulting work has been an Excel spreadsheet template and an associated chart. These tools are always readily available on my computer so that I can offer a quick demonstration tor a client. What is the break-even point?img1 The break-even analysis is an equation used to determine the point at which revenue (money in from your sales) covers all of the overhead expenses (costs of operating the business) and all of the direct expenses (costs that go towards each unit of serving customers or making your product). The break-even point is the point at which all of your costs and revenue are equal. Essentially there is no profit, and there is no loss – profit is exactly zero – all of the expenses are paid. The tool is important for calculating minimum sales targets, maximum capacity, and speed to making a profit. The biggest benefit is that it is helpful for deciding if you have developed a strong business idea, with numbers that could eventually lead to success.  Calculating the numbers img2 Total fixed costs – Fixed costs are the expenses of operating the business. These could include:

  • rent
  • phone lines
  • insurance
  • an employee on salary
  • marketing costs

The most important factor in identifying a fixed cost is that the amount spent is not directly related to the number of products sold; the landlord wants the same rent whether you sold one or a thousand units of your product. Selling price per unit – This is simply the specific amount of money the customer pays to purchase one unit of your product or service. Variable cost per unit – Variable costs are the expenses of creating and selling each individual unit of the product. These could include:

  • production materials
  • food costs
  • delivery expenses
  • an employee earning a commission

The most important factor in identifying a fixed cost is that for every unit of your product you sell, there is one more unit of expense; if you sell a thousand units of your product you will have to incur the expense of putting a thousand new units in your inventory. What it all means There are two big questions I ask clients to answer based on the results of this chart. Is it possible to sell enough of the product or service in a defined period of time (a day, month, quarter or year) to consistently achieve the break event point?

  1. How much more must be sold over the break-even point to make the profit expected from the business?

img3 A break-even analysis will help you to set sales targets that lead to your business’s definition of success. Knowing your numbers will allow you to make strong business decisions, will make you feel more confident that you are putting your effort and money into the right business idea, and will convince partners and bankers that you are the right entrepreneur for the job. The Consultants at the Halton Region Small Business Centre are here to help! Register for our Financial Basics Seminar: Understanding Your Financial Statements offered on April 23, 2014. Dial 311 from within Halton Region or 1-866-442-5866, or visit Halton.ca <http://webaps.halton.ca/forms/business_events_seminars.cfm>

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The Halton Small Business Centre joins forces with the Milton Education Village Innovation Centre

The Town of Milton has launched the first phase of the Milton Education Village (MEV) MEVIC_exteriorwith the opening of the Innovation Centre at 555 Industrial Way in Milton. This is a local initiative dedicated to enabling an entrepreneurial culture for business start-up, incubation, intersection for innovation, education and training.

Beginning in April 2014, The Halton Small Business Centre will be onsite at this new facility providing one-on-one business consultations on the first and third Thursday of each month. These complimentary one-hour sessions provide new and established entrepreneurs and business owners with a local source for small business development services. The Small Business Centre is dedicated to assisting small business clients in Milton by providing these valuable services within the new Innovation Centre. Consultations are also available at the Small Business Centre at Halton Regional Centre in Oakville as well. Continue reading

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What are YOU focussing on in your business?

In the business world, it is easy to focus on the financial stability of a company and spend a

lot of time and energy concentrating on money. While making money is obviously an Canadian_Moneyimportant aspect of most businesses, it is important to be mindful of other factors that can help you to be successful. When starting a business, it is always important to define success and whether or not your focus as an entrepreneur should solely be on dollars and cents.

To run a successful business, you must make enough revenue to pay expenses in order to continue your operations from year to year. You can’t ignore your bottom line but it shouldn’t be your sole focus either.

To help your business succeed, there are many different areas that you can focus on that will help compliment your bottom line. Some of these include:

  •          Skills – time management and leadership
  •          Knowledge – understanding of facts and information about your market
  •          Uniqueness – making your business stand out – one of a kind
  •          Communication – effectively getting the word out about your business clients
  •          Accomplishments – celebrating your achievements

Focussing on hard work, determination and balance can also help to define success. The actions involved with planning and achieving goals are very important. Most entrepreneurs thrive on meeting, surpassing and achieving realistic goals.

Your customers do not know your bank balance or your yearly revenue but they do know what kind of service or product you provide. By focusing on the way you conduct your business and treat your customers, you can help increase your customer base which will in turn complement your bottom line.  Just remember, there are many areas of business that you can focus on besides money as you work hard building and growing your business.

The Halton Region Small Business Centre is here to help you. One of the goals of the Centre is to empower small and medium-sized enterprises and give you the tools to achieve success.  For more information about resources, services, business events and seminars, contact us by dialing 311, 1-866-442-5866, online at www.haltonsmallbusiness.ca, by email at smallbusiness@halton.ca or visit us at 1151 Bronte Road, Oakville. You can also follow us on Twitter and find us on Facebook[CC1]Include a line or two about each point and how a business could benefit from focusing on each of these points. This is the key part of the post and should be help inform the reader about why they should focus on something other than money.

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Getting to Crunch Time – Could you have planned a better routine for your record keeping?

Cameron Tulloch
Business Consultant
Halton Region Small Business Centre

Visitors to the Small Business Centre often ask how to get started with record keeping. In many cases a simple system created by the entrepreneur can work well. This is especially true when the business will be a consulting practice or other service based business where there will be a relatively low number of transactions.

While there is no one correct way to keep records for income tax purposes, it is important that you create a system that is repetitive, predictable, and accurate. At the end of the year you want to know your books are complete, you can accurately declare your revenue, and are confident that you can find any receipt to prove your expense.

Here are three options to get started with keeping records. All three of these suggestions may still rely on an accountant, qualified bookkeeper or other tax professional to prepare your year-end return.

DIY Manual System

Many new businesses with simple transactions will establish a system that involves file folders, excel spreadsheets and sometimes software specifically for invoicing. They establish a process to make sure their receipts always get placed in a proper file, and tally their totals just in time to do their taxes.

DIY Accounting System

It is possible to share a file from popular accounting systems such a QuickBooks with your accountant. Advancements in technology have also made accounting software more accessible and customizable through cloud services.
This option relies on the business owner establishing a routine for creating their invoices directly in the accounting system and to set time aside to input their expenses.

Full Service Bookkeeping

Some entrepreneurs prefer to “Do what they do best, and outsource the rest”. (See our Feb 10th blog ). This option involves packaging all of your paperwork either monthly or quarterly and sending to a bookkeeper. The bookkeeper then makes journal entries, reconciles bank statements, and prepares in-term financial statements. It is likely that you will still need a daily tool for creating and tracking invoices (you wouldn’t want to do this only once per month).

Advanages1

While all of these options can work, one thing is for sure, a shoebox of paper will most certainly lead to stress and unnecessary expense come income tax filing time. Remember – it’s easier to keep up than catch up.

For more information about Halton Region’s Small Business Centre resources, services, business events and seminars, contact us by dialing 311, 1-866-442-5866, visiting us online at www.haltonsmallbusiness.ca, by email at smallbusiness@halton.ca or visit us at 1151 Bronte Road, Oakville. You can also follow us on Twitter and find us on Facebook.

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Company is coming……..Summer Company that is

Every year, the Halton Region Small Business Centre coordinates and delivers the Summer Company Program on behalf of the Province of Ontario. The Summer Company Program provides youth from the ages of 15 – 29 that are enrolled in high school or post-secondary school an opportunity to experience what it is like to live the life of an entrepreneur and open their own business. The Region is now accepting applications from students who would like to experience entrepreneurship and open their own Summer Company.

During the summer break, students that are accepted into the program receive up to $1,500 of financial support to help with start-up costs as well as 12 hours of training and mentoring with business centre staff and local business professionals. Upon successful completion of the program requirements, students are then eligible to receive an additional $1,500 award.

These supports give students an opportunity to experience entrepreneurship first hand as well as develop personal and professional business skills that will be beneficial throughout their careers.  Some students have continued to operate their businesses part-time during the school year and some have continued to develop their businesses into full time careers upon graduation. Continue reading

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Halton Region Small Business Centre Celebrates International Women’s Day

In celebration of International Women’s Day, the Halton Region Small Business Centre hosted a special event on Wednesday, March 5 entitled “We Are Women – Learning … Growing…Connecting.” The event featured a keynote speaker, two local spotlight stories and two presentations.

Keynote Speaker – Fay Chapple

The keynote speaker for the event was Fay Chapple, a successful coach, international speaker, author and entrepreneur. One of the highlights of her presentation was her top 10 mindsets for success. These included:

  1. Take responsibility for your lifeFay Chapple
  2. Design your life and business
  3. The present moment will keep you focused
  4. The comfort zone is for rookies
  5. Solve your problems yourself
  6. What’s the worst thing that can happen
  7. Surround yourself with people you like
  8. Quitting when you are almost there
  9. Energy trumps time every time
  10. Your daily schedule represents your values in life Continue reading
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Getting the most out of your visit to the Small Business Centre: Four questions that will enrich an interaction with any business advisor.

 Last year in our blog, we discussed the Six Big Steps for Starting a New Small Business. The first step is to generate and clearly define your idea.

 We have learned through consultations with our clients that the entrepreneurs who go the furthest in their business development, and generally feel that they have achieved the most during their time with us, are the ones who can clearly describe their business concept in our first meeting. They may not know all of the inner workings of their businessPicture 1 plan, processes and rules, but their ability to clearly describe and define their vision for the business is essential. Clearly defining their business idea provides them with the focus they need to successfully complete the next steps of conducting research and writing a business plan.

To help with this step we have developed a worksheet called “Let’s Talk,” designed to help a new small business owner develop their business idea. Continue reading

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