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Accounting is Just the Beginning

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Know Your Break-Even Point

The term “Break-Even Point” refers to the level of sales necessary to cover all expenses i.e. the point of no profit or loss. To calculate this, you need the following:

  • Your expenses
  • Your sales
  • Your gross profit percentage which is your gross profit (sales less your cost of sales) expressed as a percentage of your sales

Your break-even point is calculated by dividing your total expenses by your gross profit percentage and then multiplying by 100/1 e.g. if your sales are $180,000 and your gross profit $90,000, your gross profit percentage would be 50%. Your expenses are $60,000.

Expenses $60,000
Gross profit Percentage 50%
Total Cost divided by 50 (the percentage) 1,200
Multiplied by 100, that’s your break even sales amount $120,000

Things to bear in mind:

  1. Just breaking even means that there is no return on investment for you as business owner, so add the required net profit to your expenses to give you a more realistic break-even point.
  2. Variable costs. Not all expenses are fixed e.g. if your sales vary your business expenses may also vary.
  3. Proprietor’s costs. Your expenses may exclude remuneration for you as business owner which needs to be adjusted for if you want any drawings from the business!

Every business owner should know what the fixed costs and unavoidable variable costs are for them to open their doors and should be aware of their gross profit so that the break-even point at that level of operations can be determined.  Once you know this information this will enable you to monitor your actual sales performance as against your break-even figure so you know what sales you have to achieve.

If you need help with your break-even point, contact us by email or use our free, no-obligations-and-no-questions-asked Business Advice Line: 0800 ASK NICK

Visit our website for more business related articles, advices and tips: www.abac.co.nz

4 Responses to Know Your Break-Even Point

  1. Thanks for that Geraldine. Don’t forget that you can suggest future topics if there’s any particular area of business, accounting and tax that you would like to read more about.
    Also feel free (if you haven’t already done so) to join us on the A+BAC community on Facebook. This is the page where business people get real time, practical answers to their questions and share their experience.
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  2. best pension plans says:

    Awesome info once again! Thanks!

  3. Thank you! It’s always good to hear back from visitors. I hope you find our business and accounting information useful in the future.

  4. Thank you for your comment. We strive to publish useful information for our readers.