WinWeb

Accounting Software

Does Your Small Business Break Even?

August 6, 2010

Knowing whether or not your business is actually going to cover its cost every month is extremely important. A break even analysis is the only way to discover whether the products or services that you are offering makes a profit or loss. If a small business is breaking even, it means that they have made enough sales to avoid selling their product at a loss. Any sales that they make after this point will be marked down as profit.

The break-even calculation will vary depending on what type of business you are running. A business that manufactures their own products will have to contend with many variables relating to production costs, making any calculation considerably more difficult. That is why break-even analysis is primarily used in service based businesses.

For a service business, all the information that is required to calculate a break-even point can be found on the income statement. All you need to do is start with your total sales for a particular period and then start deducting costs.

Firstly, begin by subtracting the amount that it cost you to purchase all of the goods that you have sold from the supplier from the total sales figure. This will dramatically reduce that figure. Then you should subtract your fixed costs also. These are usually simple to calculate because they refer to costs that will not change regardless of output, such as rent or insurance.

The operating costs are the final deduction you must make. These can be more difficult to work out because they will fluctuate depending on your sales. If you make more sales it is likely that you will have had to pay out extra costs. Once you have made these deductions, you will be aware of your break-even point.

To make it easier to calculate your break-even point, it helps to use accounting software. WinWeb have an excellent Accounting Software application which makes it simple to get an instant overview of your finances. It has never been easier for small businesses to take control of their financial situation with WinWeb.