Breaking Even

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Starting a new business is a great adventure. Financial information is crucial so have the expert bookkeeping services in Orange County helping you out with this.

Starting a new business is a great adventure, but it also means hard work and a lot of hours, sometimes financial difficulties and many headaches. Not everything is bad, having your own business can be very rewarding and give you the chance to be your own boss, explore your limits and your creativity. The reasons for doing this are many, but the main reason is usually related to money. What every entrepreneur wants to know is the moment where the company will make a profit. This moment is called the “break-even point” or BEB. Answering this question is very complicated, but with the right information it is possible to give an approximate time if some conditions are present. Financial information is crucial for this and there’s no better way than having the expert bookkeeping services in Orange County helping you out with this.

Predictions in the business world are a mere chance, we can provide a forecast based on the analysis of other companies with the same activities, the market behavior and other factors such as costs. This doesn’t mean that you shouldn’t expect your break-even point to be reached, it only means that you have to be very careful and vigilant with your company and make the necessary changes if it is needed.

So, the first thing to do is a break-even analysis. For this specific activity, you need to know the total fixed costs over a period of time and the total variable cost per unit. It sounds complicated, but the explanation is simple. Your fixed costs are going to be always the same even if you don’t make a single sale, you still have to pay the rent, the power bill, the phone, the internet, salaries, etc. and your variable costs are going to change depending on the amount of units that you sell. For example, you may need to pay over-time, you need more raw material to produce more units, etc. Adding both types of costs will give you the total cost at any given time. Are you struggling to understand this? Let’s make it very simple, if you sell apple pies and you pay someone to bake them, even if you don’t have any orders, you still have to pay that person to show up in case you have to bake one, in the other hand, you don’t have to buy 300 apples if you don’t have any orders. Then you suddenly have a big order and you need to buy more apples, more flour, more sugar, and the client want 20 pies for the next morning. Chances are that you will either have to hire another person to help you out for the day or you need to pay extra to your employee to finish the order on time. Simple, right?

Now that you got what your costs are, you can be either losing money, at the break-even point or making profit. Your break-even point is when your total sales revenue is exactly the same as your costs, and from that point on if your total sales revenue is higher that your costs you make a profit.

Calculating your costs and all the variables involved can be overwhelming and confusing even for those with some business background, try out outsourcing a professional service such as the bookkeeping services in Orange County and make sure that you are heading in the right direction.