Running your business as we come out of lock down may require a new look at your fixed and variable costs and productivity.
Just to remind ourselves, our break-even level of sales is calculated as follows:
Fixed costs/gross profit percentage of sales = our break-even level of sales
- fixed costs = all of our costs that do not vary with sales
- Gross profit is our sales less the costs that vary with sales (materials, some labour costs)
- Gross profit percentage is our gross profit divided by our sales multiplies by 100
Let’s say that:
- Our sales for a given period are €200,000
- Our variable costs to make those sales are €120,000
- Our fixed costs are €50,000 in that time period
This means that:
- Our gross profit is €200,000 less €120,000 = €80,000
- Our gross profit percentage is €80,000 divided by €200,000 multiplied by 100 = 40%
- Our break-even level of sales is our fixed costs = €50,000 divided by 0.4 = €125,000
Our break-even level of sales can be calculated on a daily, weekly, monthly or annual basis.
Knowing our break-even level of sales helps us to set budget targets which are essential in running our businesses.
Review all of your costs and calculate your new break-even level of sales.
Also review how productive your team is under the new restrictions as a reality check on the level of sales that you are projecting to achieve going forward. Ask yourself what you need to do to achieve the level of sales that you need to break-even and to make a profit.
Contact me at ….. to help you to put your business on a sound financial footing.