Break-even Analysis for Bookkeeping

At a recent meeting an accountant asked a group of small business owners to estimate given a certain amount of fixed costs and variable costs what % per product sold would sales need to increase to gain a $20,000 increase in net profit. The various answers given indicated some deficiencies in small business strategies.

Calculations like this fall into the realm of Break-even Analysis.

Calculating for example what an increase or decrease in price of a product would do to your bottom line.

Break-even Point

Why is Break-even Analysis so important?

As a leading Gold Coast SEO I was staggered at the variation in estimates small business owners used to guess the figure - they ranged from a 400% increase to a 10% increase with the correct answer being 20% (I didn't get it right either).

These are experienced small business owners, many running successful businesses. Some of them appear clueless as to the basics of Break-even Analysis (at what sales volume point your business breaks even - covers it's costs).

Break-even alalysis can really help quantify important business decisions.

For example you are a Brisbane Commercial Electrical Company and your competitors are using Google AdWords to attract customers - given your fixed and variable costs, the number of call-outs you do a week with the average Cost of Sales what price is the maximum you can bid in Google Adwords to attract a sale and make your profit target?
These are not simple calculations. This is further complicated by the fact that it may take 4 contacts (yes pay for 4 clicks and get 1 sale) to gain a sale. It's now getting scary as clearly many small businesses are not factoring the cost of a sale there advertising strategy needs to break-even. An efficient bookkeeper could help you make these decisions.
This is now entering the realm of Cash Flow Analysis.

Motor Mechanic Hoist
A motor mechanic may need to know whether purchasing a new hoist is going to be an effective business decision.
A new hoist may then allow more clients per day to be serviced - however if a new hoist costs XXXX how much extra profit can be earned from the investment?
Is it a good investment?

Using a Bookkeeper to manage your books

Experienced bookkeepers help businesses collate and categorise expenses so effective analysis of profit can occur.
First a few common accounting terms to help us along. We need to classify your costs according to how they behave (are they fixed or variable) -:

Fixed Costs FC

Fixed costs are those that occur regardless of whether we make a sale.

Variable Costs VC

Variable costs are those that occur in making a sale, and they increase in proportion to our sales. For example a custom furniture manufacturer uses more timber as more tables are created.

Yoga Studio

Any business can benefit from Break-even analysis

Whether adding another employee is going to benefit your bottom line depends upon those fixed and variable costs.

A Yoga studio based on Gold Coast is not the first type of business you would expect to be using break-even analysis, however a quick look at the business model shows many good reasons for doing so.

At a certain number of monthly subscriptions the centre will break-even. Rent, Electricity, Insurance etc will be covered and additional subscriptions will be largely profit. Knowing you break-even with an average class attendance of say 4 students helps make a decision to setup the studio.

A Yoga studio will have initial setup costs like yoga mats etc however the ongoing costs apart from fixed costs are low.

How many yoga studios analyse these costs to determine the number of monthly subscriptions required to break-even?

SEO and Profit

How about skill upgrades and Training

Back to the topic of SEO (search engine optimisation) here are some of the variables involved-:

The price of SEO from a clients perspective must always deliver more value than you spend. Otherwise why bother. To be an effective SEO there is a certain amount of qualifications and training required.

Somewhere in the mix we need the skill and training to be an effective SEO at a price that is attractive to clients.

Add Comment via your Facebook login
Add a comment to this article via your Facebook Login

What's New in Web Development

Check our latest offerings and ideas

Other Articles

09/10/2018 Anatomy of a local Google Search »
19/09/2018 A French Affair and Dangerous Liaisons »
23/08/2018 Recycled Timber Architecture Features »
09/08/2018 The Un-natural Art of the Wheel »
03/08/2018 How much should you spend on a website? »
24/07/2018 A Brief History of Kimono and Obi »
11/07/2018 What do we mean by home automation? »
11/07/2018 Southport Mechanic »
06/06/2018 Seeing Red over Cola »
28/05/2018 Why a Multi-Skilled SEO offers better value »
11/05/2018 How does the DREAM turn into a SCREAM? »
07/05/2018 The Alarming History of Geese, Dogs and Bells »
05/04/2018 Air Spider »
13/03/2018 Planting a hedge fence »
09/02/2018 Life Saving Tyre Accessories »
06/02/2018 The bakers oven stops »
06/12/2017 Relationship Counselling - the volatile couple »
09/11/2017 Don't kill the ants »
25/10/2017 Plumbing, the Ancient Art of Managing Water »
11/10/2017 The Secret Life of Micropiles »
29/09/2017 Foundation Underpinning »
08/09/2017 Termites the secretive pest »
07/09/2017 Sharing your Google Analytics »
05/09/2017 Website speed test claims put to the test »
23/08/2017 Custom Timber Dining Tables »
23/06/2017 Kitchen Renovation Alfresco BBQ »
12/06/2017 Hire a photo booth »
10/05/2017 My Site Dropped out of Google »
20/04/2017 Recycled Timber comes with a story »
08/04/2017 Light Up Your Home »
12/12/2016 Evolving eCommerce with SEO »
05/12/2016 Image Manager 4 Released »
14/10/2016 Classic Gold Coast »
26/09/2016 Techheads who can market »
09/09/2016 Issues with childhood photography »
30/08/2016 Never Make an Impulse Buy »
15/08/2016 Using the potential of YouTube »
02/08/2016 How to add a review to Google Places »
26/07/2016 Servicing your air-conditioner »
22/07/2016 Eco-friendly Home Building »
13/06/2016 Timber Floors »
13/05/2016 Timber Furniture Gold Coast »
13/04/2016 Interactive Charts »
18/02/2016 Ideas for creating passive income »
29/01/2016 Better Childhood Photography »
30/12/2015 Gold Coast Real Estate »
20/11/2015 Feed-in Solar Tariffs Queensland »
05/11/2015 Kindergarten Photographers »
23/09/2015 Low Budget High Impact Web Videos »
08/09/2015 Pool Inspection Laws Queensland »
23/07/2015 Protection against power surges »
13/07/2015 Intelligent Security Systems »
17/06/2015 Advanced Security Cameras »
15/01/2015 Is your security provider licensed? »
06/01/2015 Inspired by Necessity »
07/12/2014 Social Media vs SEO for sales generation »
01/11/2014 Responsive Websites vs a Mobile version »
08/09/2014 Simplify Writing - Get that job »
08/04/2014 Cockroaches like BBQs too »
27/03/2014 Admin System Mark 3 »
12/02/2014 HTML5 improving SEO and Social Interaction »
17/01/2014 TV Commercials with impact - on time »
02/12/2013 Negative SEO »
29/11/2013 A flexible e-mail system »
13/11/2013 Social Media Strategies for SEO »
15/10/2013 Web Video Production »
26/09/2013 Soft drinks can damage your teeth? »
29/08/2013 Haridresser Gold Coast »
26/08/2013 Jet Boat Ride Gold Coast »
06/08/2013 Dental Site Videos »
03/08/2013 Gold Coast Tradesman Directory »
02/07/2013 Creating audio for your site via your iPhone »
23/04/2013 Yellow Pages Google Partnership Unfair »
17/08/2012 Facebook Account Security »
06/07/2012 Gold Coast a great place to Study »
22/12/2011 New Real Estate System »
17/10/2011 Managing your domains a quick guide »
04/04/2011 Our Facebook Application »
01/02/2011 Video Marketing »
05/01/2011 Questions to ask your web developer »
28/12/2010 Health and Fitness sites »
28/12/2010 Surfboard for sale site launched »
09/12/2010 Why is my content management system so slow? »
26/11/2010 Google now includes local places results »
31/10/2010 Getting Listed on Google Places very important »
19/10/2010 Security Systems site launched »
28/09/2010 Google Personalized Searches »
13/09/2010 Web Marketing To Green or Not to Green? Beware! »
09/09/2010 Jet ski or Jet boat Gold Coast »
19/07/2010 Java Web Hosting »
07/07/2010 Assess your eCommerce opportunities »
11/06/2010 DIY SEO »
26/05/2010 Planning a website »
22/04/2010 Enhanced Email Marketing Tool for your website »
12/04/2010 Site Speed is important for Google »
26/03/2010 360 degree Panoramas + Google Maps »