Talking Cents

Sydney small businesses accountants showing the break even point

As small business accountants in Surry Hills, we like to make sure that our clients and small businesses across Sydney are doing their business justice.

All small businesses owe it to themselves to keep on top of their accounts and know the critical success factors relevant to their business. One key measure used by accountants to assist small business owners is a break-even analysis.

This is essentially a forecast profit and loss based on a few key assumptions about your business, such as knowing your total wages expenses, cost of materials and rent as a percentage of your total income.

Each business should perform a break even analysis on an annual basis to determine just how much income needs to be generated in order to cover your expenses and achieve your desired outcomes. Some relevant factors in working out your break-even point are:

• Use the last 12 months as a starting point
• List all known fixed expenses for the coming year
• All variable expenses for the year should be noted as a percentage of total sales
• Factor in your personal wages or drawings, or a desired net profit if you’re a sole trader/partnership.
• This personal wage or net profit should be more than adequate to cover your personal living expenses if the business is your sole source of income.
• Check with suppliers for any foreseeable price increases that may be in the pipeline.

Once all of these factors are taken into account for your Sydney small business, you will then be armed with the knowledge of how much income your business needs to generate in order to operate a successful business.

Knowing that key piece of information then lets you work on meeting regular sales targets, knowing that if you do, the outcome is going to meet your desired goals.