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  • Tips on how to determine the break-even point of your business
    It is common for many budding entrepreneurs to concentrate on maximizing profits when they should actually be focusing on the realities of covering their expenses. When a business finally begins to pay its way, meaning the company is making enough money to cover its variable and fixed expenses, it is called breaking even. Depending on the type of business and your particular strategy, how long it takes to reach this point will vary considerably. With a little more time and effort, any money earned above and beyond your expenses will be your profit. Having an accurate estimate of precisely when your business will reach a break-even point is key feature of any comprehensive business plan. It is helpful to investors who will expect to know how you have gone about estimating when the company will be able to pay its own way. Estimating the break-even point is done by working out how much you will sell each month and how much you expect to earn from the sale of your goods or services. To calculate a realistic break-even point, you will need to determine your fixed costs, such as loan repayments, salaries and monthly operating costs, as well as variable costs. Once you have these figures you will need to compare them with your sales projections. By calculating and comparing the monthly revenues against monthly costs, you will be able to determine an accurate break-even point. It is important to calculate your break-even point so that you can adjust your business strategy accordingly. Knowing your break-even point will enable you to consider how much monthly business you need to generate. Once you have accurately determined the number or value of products or services you need to sell each month, you can then move further ahead into your sales projections. By estimating your monthly turnover it is possible to calculate the volume of sales required to cover your costs, in other words, the point at which your company reaches a break-even point and starts to move into profit. In some cases, it may be necessary to cut costs and improve efficiency in order to break even within an acceptable period of time.
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