Category Archives: Business

EXAMINING THE VIBRANCY OF YOUR BUSINESS

EXAMINING THE VIBRANCY OF YOUR BUSINESS

Akin to a healthy body demanding routine checks and examinations, so too does a vibrant business in order for it to thrive.

No matter what phase your business is in, to keep it going you must examine its systems, pay attention to any ailments and prevent early attacks.

For any new business, the goals and system checks are relatively simple. Simply staying active and maintaining your sanity is a measure of accomplishment at this point in development.

The systems within any new business are very limited in the start-up stage.

Panalitix Pty Ltd, a business improvement and consultant entity, explain this is because there are usually only a handful of people working to increase capital, expand its cliental while at the same time trying to deliver a superior product.

Panalitix’s also describe the three most common causes of mortality at this stage of the business as being:

  • Atrophy—all capital and funds are exhausted, often due to the business being started underfunded
  • Brand Disregard— the marketplace has neglected to recognise your company’s product or service, as there is often discord between your branding and your company name
  • Stress—often the business owner has gone into business as a lifestyle choice not realising the implications and commitments required of running a successful business. All too often, the business owner wants to be the seller, the doer, and the book keeping all in one, which results in the business owner no longer able to handle the pressures of running a business resulting in sale or closure. The key message here is do what you do best and outsource the rest.
Why not call Murray Your Chartered Accountant and Accountability Partner at Insight CA on 09 3093222 or email murray@insightca.nz to commence your journey today

 

As your business evolves, basic survival is the next measure of success. However, hoovering on the edge of just making enough to survive is dangerous to anyone’s health, including a business. The systems and employees within this phase of the business are still limited, and while expenses are often covered, profit is marginal and cash flow can and should be projected.

Further, at this stage of the business, it is not uncommon for many businesses to get stuck, and failure to thrive is often attributed to lack of vision and professional financial assistance, insufficient funds, owner burnout and marketplace factors. It is these businesses that simply closedown when the owner has had enough or are unfortunately sold at a loss.

To prevent such demise, every business should endeavour to obtain optimal and vibrant health by training your business body, assessing and rigorously attacking the businesses weaknesses and making critical decisions, optimising the businesses strengths while simultaneously making critical decisions including how best to grow and expand your business and how to reinvest in its success.

To increase your business success and improve its potential of achieving optimum vibrancy constant examinations and monitoring of the business vital systems and procedures, will require constant monitoring.

Historically, Insight CA Limited has discovered that when business owners work with us to understand their business (specifically KPI’s, revenue, margin, overheads and cash in their business) and to establish extended targets, while concurrently monitoring both their business financial and non-financial key performance indicators every single month, healthier results are achieved.

Here at Insight CA Limited, we would be delighted to work with you, as your Accountability Partner, to check the vibrancy of your business or assist you in implementing any of the ideas reviewed in this blog. Please do not hesitate to contact us for forward thinking advice.

Call Murray at Insight CA Limited on 09-309-3222 or email murray@insightca.nz

SIX WAYS TO PROFIT FROM YOUR VACATION THIS SUMMER

SIX WAYS TO PROFIT FROM YOUR VACATION THIS SUMMER

Summer is just around the corner, and although it may seem strange, now may be the perfect time to increase the value of your company.

 

The most valuable businesses are the ones that can survive without their owner. A buyer will pay a premium for a company that runs on autopilot and levy a steep discount for a business that is dependent on its owner.

This Summer

Consider taking an extended break from your business to see how things will run when you’re not in the building. It’s likely that some things will go wrong, but use those errors as the raw material for making your business operate more independently of you.

Here is a six-step plan for profiting from your vacation time this summer:

Step 1: Schedule your vacation plus one day

Whatever day you plan to start working again after your holiday, tell your staff you’ll be back one day later. That way, you’ll have a full day of uninterrupted time to dedicate to understanding what went wrong in your absence.

Step 2: Bucket the mistakes

When you return, make a summary of the things that went wrong and categorize them into one of three buckets:

  • Mistakes: errors where there is a right and wrong answer;
  • Bottlenecks: projects that had difficulties because you weren’t there to provide your feedback;
  • Stalled projects: initiatives that went nowhere while you were gone because you’re the person leading them.

Step 3: Correct the mistakes

The first and easiest place to start is to simply correct the mistakes that were made. Usually mistakes are due to a lack of training rather than outright negligence. The right answer may be crystal clear in your head but not immediately obvious to your staff. Write up some instructions for next time the employees face the same situation. Make sure your instructions are clear, and share them with your team so everyone has them. A file sharing service like Google Drive or DropBox can be a helpful repository for your instructions.

Step 4: Unblock your bottlenecks

If you’re being asked for your personal input on projects, there’s probably going to be a bottleneck if you’re not around. Make sure your staff is clear on the projects where you need to have a say and the projects where you don’t. Some employees may wrongly think that you need to approve all decisions. Make it clear when you want them to act alone and when you still need to have a say.

Step 5: Re-assign stalled projects

The hardest part of making your business less dependent on you is dealing with projects that get stalled when you’re away. Start by asking yourself if you’re the right person to lead the project in the first place. As the owner of your business, projects often fall in your lap by default, rather than because you’re the best person to lead them. Categorize your stalled projects into two groups: a) strategic projects you need to lead; and b) non-strategic projects you are leading by default. Hang on to the strategic projects, but delegate the non-strategic projects to someone on your team who is better suited to drive them forward.

Step 6: Give every employee a blank check

At Ritz Carlton Hotels, they give every employee discretion to spend – without approval from their general manager – up to $2,000 on a guest. The $2,000 figure is a large enough number to make the message clear: front line employees should act first, make the customer happy, and ask questions later. Many employees know how to make a customer happy but lack the confidence to act. Giving employees some spending authority will speed up the resolution of customer issues and empower your team to do the right thing when you’re not there.

The sunshine is beckoning, so go ahead and plan that vacation – if you follow the six steps here, you may end up having a great holiday and a more valuable company.

HOW YOUR ACCOUNTABILITY PARTNER CAN HELP YOU ACHIEVE YOUR GOALS

HOW YOUR ACCOUNTABILITY PARTNER CAN HELP YOU ACHIEVE YOUR GOALS

The benefits of having an accountability partner

Does Your Accountability Partner really cost you that much?
Have you set goals and measurable budgets for your business as yet?

 

Let’s face it, we all have a goal or two that we set every year, but somewhere along the journey, the goal becomes less and less of a priority.

With so many distractions and the occasions in which life gets in the way, meeting your personal and professional goals can seem nearly impossible to achieve. Whether you are looking to lose a few extra kilos, launch a new business, or save to purchase a new home, Your Accountability Partner can help you stay committed and focused. Reach out for that help

Connecting with Your Accountability Partner will help you to:

Prepare your measurable goals in writing

Yes, one of the first tasks would be to critique the past, and set up the forward looking sales, cost of sales and overhead budgets and then implement them into a cash flow budget as well. Remember achieving your profitability goals also requires knowing where the cash is coming from and where it will be spent to ensure you operate within your existing cash resources and knowing when situations might be tight and need to seek external funding in advance of the reality.

Keep Your Momentum

Sometimes, the journey to accomplishing your goals can mean a bumpy and hard road. It can be easy to lose interest when the road gets tough. Your Accountability Partner can help you stay committed and work toward slaying your goals by conducting regular meetings.

Bounce Ideas Off of Each Other

Four eyes are better than two, right? Your Accountability Partner can be an ear and a set of eyes to help you discover a new perspective that may not have been obvious to you. For example, when to recruit or retrench staff, when it is more cost effective to replace a fixed asset than to incur the constant repair bills

Provide Support

There are going to be times when you just want to vent or need someone to talk to about your specific needs. It’s good to be able to have a partner that can empathize with you because they are familiar with your journey. For example, I recently had a client considering relocating premises within the same industrial area, so we were able to objectively consider the pros and cons of such a move and whether that should be that they remain tenants or become landlords

Challenge Yourself

No one ever accomplishes their goals by staying stagnant! You should strive to be a better version of yourself each and every day. Your Accountability Partner can help you see beyond your current circumstances. Remember, if it were easy, you would already be doing it!

This is a big one! Staying focused is one of the hardest things to accomplish these days. With social media and endless entertainment on streaming sites like You Tube, you can easily slip out of focus. How many times have you sat at your computer to send an important email and found yourself on Facebook, scrolling and liking pictures for hours? YourAccountability Partner can make sure that you use your time wisely.

Connect with Murray of Insight CA Limited as Your Accountability Partner on 09-309-3222 or by email: murray@insightca.nz and start that journey.

STRESS & LIFESTYLE OF THE BUSINESS OWNER

STRESS & LIFESTYLE OF THE BUSINESS OWNER

Research indicates that 90% of business owners report they enjoy their work, however only 71% report using their spare time doing things they actually get pleasure from.

 

In this communication we will again address the question of “WHAT IS KEEPING YOU AWAKE NIGHT”, based on the research of B Star, a research house based in Australia. In particular we will discuss the subject of Stress and Lifestyle balance.

B Star, report that stress and lifestyle was tabled as the number 3 concern of all business owners.

“The stress is getting to nervous breakdown stage”

The success of SME’s is heavily dependent on the involvement and personal effort of the business owners.

Research by B Star report that only 30% of owners believed their business could operate without them.

Consequently, the majority of business owners foster their stress levels by not taking regular breaks.

Despite this, little is being done to reduce the day to day dependence on the business owner.

“I stepped out of the business for 18 months to pursue another venture. It didn’t work. Without my direct involvement, the books were a mess. No-one was following the systems or collecting debtors. I had to come back”

Given this dependence, it is very important that owners take care of themselves. Notably, 79% of owners say they are paying attention to their diet and overall health.

Maintaining a healthy work/life balance is fundamental to preventing the onset of burnout and exhaustion, which remain key risk factors for business owners.

The majority of business owners report being tied to working in their business, with only 57% being able to spend their desired amount of quality time with family.

“I am thinking of stopping full time work in 5 years. I would just like to enjoy my family. I don’t spend enough time with them now.’

Staff can be a way to reduce stress through delegation of responsibility and sharing of workload. However only 49% of business owners believe their staff are engaged to grow their business.

Some 70% of business owners were not managing staff with strategies for staff retention and motivation. As a result, businesses that employ staff are more likely to indicate stress caused by staff management and motivation.

Family owned and operated businesses can also generate their own, unique stress. Families do not always work well together in a business. Children may not have the necessary skills, and may not want to work in or take over the family business.

“I need someone to replace me, and sit in the driver’s seat. My daughter would not be good in the office, and we clash too much. My son is too young and wouldn’t handle the stress”

Different expectations between family members often causes conflict and stress. For example, misunderstandings and assumptions, instead of communication are common.

“Succession is on hold for now. We are sorting out conflict within the family”

Adding to personal stress, business owners sometimes report that they need to make choices between their obligations to family, or their business.

“Right now I am focused on family, rather than building business value. I am happy where we are now. The kids are growing up. Growth is a consideration for the future (1-5 years)”

Where is this all leading to? Well in summary, many owners create the imbalance of stress and lifestyle themselves. They are the business, they continue to work in their business and not on it. When looking to sell the business the perceived value that the owner is expecting is not evident as they are the strength behind the value of the business they have built.

You can depend on Insight CA Limited, as your Trusted Advisor and Accountability Partner to properly plan and provide for the needs of your business and its ongoing journey of growth and succession, while creating value in the business with less reliance on the business owner, thereby in time reducing the stress and creating a more balanced lifestyle choice.

Why not call Murray Your Chartered Accountant and Accountability Partner at Insight CA on 09 3093222 or email murray@insightca.nz to commence your journey today

WHAT IS KEEPING BUSINESS OWNERS AWAKE AT NIGHT

WHAT IS KEEPING BUSINESS OWNERS AWAKE AT NIGHT

WHAT-IS-KEEPING-BUSINESS-OWNERS-AWAKE-AT-NIGHT

What is keeping Business owners awake at night?

Well in the majority of cases the following issues arise

In this communication we will address the BUSINESS PLANNING aspect of “What is keeping you awake at night”, based on the research of B Star, a research house based in Australia. Business planning ranks as the highest of the SME concerns, but often business owners do not know where and how to address this concern.

The majority of business owners do not have business plans, as a rule of thumb, 75% do little or no formal planning. A consistent theme of the research is that they concentrate their efforts on day to day operations, without understanding or reviewing how the business is operating. Failure to plan is attributed to lack of time, skill or experience or a combination of both these factors.

“I don’t have the time to spend on strategic and business planning”
Does that sound like the mould you fit into?

Without adequate planning, small businesses may never develop to become SME’s.

“This is currently a one man operation. I need to let some of it go, and introduce new staff. I need to hire someone”

The need to plan is often extremely challenging for the SME businesses, particularly where they feel swamped by the everyday pressures of operating their business and delivering to customers.

“I am the biggest barrier to growth in my business. I currently have two months’ work on hand. It is too much, I am not coping with the demand. Two of my staff left three months ago, at our busiest time. I have lots of scope for more work, if I could only employ two more staff, but I just haven’t done it. I know it would take 3 months to get them competent. I need to change my headspace, and be more involved in promotion and getting more work in, not trying to do it all”

Does that sound like you?

Why Not Call Insight CA On 09 309 3222 To Discuss The Next Steps

 

Business owners need to take positive steps to address the larger issues and make the necessary changes to improve their business.

SME owners are optimistic about their businesses and have ideas, but they don’t have plans to achieve them. BStar’s research shows that 72% of business owners don’t have a business plan and that only 34% dedicate regular time to strategic and business planning. Effective planning requires skill to establish appropriate plans, then to go on to implement and monitor those plans.

GROWTH PLANNING

Growth plans? I don’t have any. My original plan is 5 years old and hasn’t been updated

Growth planning is not really important to me. It is more important to maintain the margins, and make a profit than just make sales
Is this the type of comment that typifies your ownership style?

Business owners are typically not taking advantage of their opportunities. Some 77% of business owners do not have a detailed plan for the future growth of their business, with only 22% having a plan that specifically focuses on improving the value of their business

I have been extremely concerned about declining sales and profits, but I am already implementing changes in the business. I have a detailed growth plan

Without discipline and regular reviews, planning lacks focus, and may not be relevant to improve business operations and achieve stated goals.

 

TRUSTED ADVISORS
External advisors, such as Insight CA Limited, Chartered Accountants & Business Advisors, should be consulted where the business owner’s need assistance in the area of business planning.
Further to this, as trusted advisors we can also work with the business owners in the areas of Financial Performance, Industry Performance, Governance, Strategic and Operational Performance to name just a few areas

SUCCESSION PLANNING AND EXIT STRATEGIES

SUCCESSION PLANNING AND EXIT STRATEGIES

In this communication we will address the subject of SUCCESSION PLANNING, of “WHAT IS KEEPING YOU AWAKE AT NIGHT”, based on the research of B Star, a research house based in Australia.

Succession Planning was tabled as the number 2 concern. There are good reasons for this.

But first, what is succession planning?

Succession Planning is Forging the future of your business beyond the boundaries of today and this requires strategic planning and an in-depth understanding of tomorrow’s potential.

“It’s a family business, and since father passed away recently, I am concerned that my brother doesn’t want to continue in the business. We never did any succession planning, and I don’t know what we are going to do”.

Research has indicated that business owners were evenly divided between those who saw succession planning as an urgent need and those who saw it as something to be deferred.

Often business owners assume that their children, or other family members will take over the business, but have not discussed this those involved, and don’t have any idea of how it would take place.

Generally, business owners indicate that while they see succession planning as necessary, they are not comfortable with it. 90% of businesses included in the report did not have a succession plan in place. Less than 10% had a buy/sell agreement or business succession agreement in place.

RISK

Risk is one aspect often ignored by SME. Without understanding or reviewing their business’s operation, the business owner can be unaware of the risks they are running day to day. Awareness is needed before action can be taken to reduce those risks

A useful example is the key person risk, which is very common in SME’s. Approximately 30% of those surveyed believed their business could operate without them. The majority have a clear KEY PERSON RISK. But few SMEs were addressing that risk.

Approximately 30% of those researched had business and key person insurance in place to protect the business from illness or injury to owners or key staff

Approximately 50% of those researched were not willing to deal with succession- instead deferring consideration in favour of retaining control and remaining in business.

“I love what I do. I don’t want to retire. In the future, I want to still to work 2 days a week, on the tools”

“We haven’t done anything about succession. I am working on building the company so that it is sustainable for people coming up either from the family or key staff”

Less than 10% of business owners indicated that they have a reasonable understanding of succession planning.

SME’s, generally have not taken advantage of external succession options, such as insurance. Less than 1 in 3 had arrangements in place to deal with the owner’s ill health, such as key person insurance, or other insurance. Where there was a buy/sell agreement in place approximately 20% of business owners had life insurance in place to implement the agreement

STAFF AND SUCCESSION PLANNING

“I am not really interested in personal succession or estate planning. I am more interested in business succession. I don’t have a plan yet”

SME’s have small staff numbers. The impact of ineffective recruitment or the loss of a key person is much higher in an SME. As a result, staff issues are of a higher risk, particularly if not handled well. BStar’s research confirms that SME’s are doing little, or in many cases, nothing, to manage their staff or planning to reduce staff risk

Approximately 70% of SME’s were not acknowledging their risks in this key area, or taking any steps to manage them

Day to day operations remain heavily reliant on the SMEs owners, and one or two key staff. This continues unless the SME grows large enough to obtain, or afford, specialist internal or external HR resources.

 
So in summary
 

Why do I need a Succession Plan?

It begs the question, Is planning really necessary, do you need professional advice and if you have firm ideas on what you intend to do, is that not enough? Well the answer is a common sense one. If succession is really important to you, and if you do not want to leave things to chance, then planning, independent advice and early action is critical.

A steady and progressively managed transition, when started early, will provide certainty and assurance to you and to future generations in an environment of continued growth and compounded wealth

Benefits of Succession Planning

Succession is all about outcomes. It is about ensuring you achieve what you want to achieve for your business, your family, your wealth and yourself. By listing some common goals for succession you will quickly see why they should not be left to chance:

  • Grow and maximise the capital value of my business
  • Allow me to be actively involved in my business for as long as I want, at the level I want and as long as l can make a valuable contribution
  • Build my wealth and ensure I have enough capital to do things I like and to be able to enjoy life when l begin to wind back from the business, and then finally retire
  • Provide for my family and ensure my wealth is not lost by the next generation
  • Receive value for my effort
  • Transfer the business over to the next generation in a manner that will provide for its continuity, growing profitability and capital value
You can depend on Insight CA Limited, as your Trusted Advisor to properly plan and provide for the needs of the business and its ongoing journey of growth. Why not call Murray at Insight CA on 09-309-322 to commence your journey

IS YOUR BUSINESS SHOWING “WARNING SIGNS” OF A BUSINESS IN TROUBLE?

IS YOUR BUSINESS SHOWING “WARNING SIGNS” OF A BUSINESS IN TROUBLE?

IS YOUR BUSINESS SHOWING “WARNING SIGNS” OF A BUSINESS IN TROUBLE?

The benefit of hindsight is a wonderful thing. It often helps to get the perspective of a Chartered Accountant or Business Advisor. An insolvency practitioner (liquidator) came up with a list of warning signs of trouble in a business.

We all want to stay positive and not talk ourselves into a recession, but it pays to be realistic. These signs are not meant to alarm, but to alert you to the need for some proactive steps, rather than waiting until it’s too late.

Here are the ’Business-in-Trouble’ Signs

  • Your overdraft is near or at its limit for a significant period of time.
  • Difficulty meeting your suppliers payment terms.
  • Your staff are spending time on telephone with suppliers about outstanding payments.
  • Your suppliers are threatening COD terms or stop supply.
  • Your suppliers are putting your business last for service priority.
  • Your cheques start to become dishonored by your bank or if using electronic payment methods, your payments do not process due to being at your bank limits.
  • Your suppliers issuing demands or threatening legal action.
  • Your Creditors balance increasing whilst debtors and inventory/WIP remaining static.
  • You experience difficulty paying GST and PAYE tax deductions to the Inland Revenue Department.
  • You have hesitation in lodging GST returns when they fall due as funds being required elsewhere in business.
  • You start to receive correspondence from Inland Revenue Department about outstanding GST lodgements or overdue payments.
  • You are needing to sell capital assets to fund ongoing trading.
  • You are unable to place orders for stock due to cash constraints.
  • Staff morale down due to perception of Cash flow difficulties.
  • Higher than normal staff turnover as a result of above.
  • Bank requiring more information or security in order to maintain credit facility as you have now triggered warning signals at the bank.
  • You start to put off costs of maintenance on equipment which could cause an interruption to running your business.
  • Your bank has suggested refinancing.
  • You become behind with insurances e.g. Accident Compensation payments, product and public liability.

 

If you are experiencing some of these problems then consider reaching out for an initial chat with Murray of Insight CA Limited: email murray@insightca.nz or call the office on 09-309-3222

7 WAYS TO REDUCE CASH FLOW PROBLEMS IN YOUR BUSINESS

7 WAYS TO REDUCE CASH FLOW PROBLEMS IN YOUR BUSINESS

One of the most common tools directors, management and advisors use to assess business performance is profit, but profit doesn’t always mean debts are being paid as and when they fall due, being the test of “solvency” that so many directors are aware of but do not consider in terms of implications or reckless trading

 

Which is why many profitable businesses fail by running out of cash

We’ve all heard the story. A new business arrives on the scene, powered by a fantastic business model. It does really well, and manages to increase its profits year after year.

But then there’s a hiccup. A major customer can’t (or won’t) pay their account. And while they’re still making a profit, they don’t have enough cash on hand to pay the bills. The business becomes insolvent, and ultimately fails.

You can’t monitor or assess a business’ true performance solely on profit. Heard of the expression “cash is king”? Well, when it comes to ensuring your business not only survives but thrives, it’s the truth.

So how do you prevent the same thing happening to your business? Here are seven ways to improve your cash flow:

  • Invoice regularly with payment terms that match your business’ cash cycle. If your wage cycle is weekly, invoice weekly. You will need to ensure your terms of trade reflect this, if not amend them. Unless you are big business, where B2B is typically 20thmonth following, why not endeavour to reduce your debtor days by invoking same day, 7 day credit terms.
  • Set due dates for your customers so you can pay your creditors within their trading terms.
  • Set small credit limits for customers (as mentioned above), and follow up trade references. You may also want to conduct credit checks. And be more rigorous on stop credit iif limits are breached.
  • Outsource your credit collection. The benefits of a professional service provider far outweigh the cost of your own staff providing this often hap hazardous service by reducing receivable days and increasing cash flow
  • Negotiate extended creditor payment terms (if possible) and pay your creditors on their due dates.
  • Review your cash flow and budgets regularly. Get an expert chartered accountant – business advisor to review and challenge your assumptions, and help you develop ways to improve your cash flow.
  • Have contingency plans for worst-case scenarios, such as access to a line of credit or overdraft and if you are a fast growing business consider an alternative form of finance being Debtor factoring

 

All too often business owners consider working with their chartered accountant- business advisor to monitor cash flow is a cost they wish to avoid, however we challenge you to think of it as an investment in your business.

At Insight CA we can’t stress this highly enough. Most new clients we see don’t even have a cash flow forecast, which is a real worry , so this is our mission in 2017 to introduce business owners to this discipline of regular cash flow forecasting, a healthy habit to adopt…

Cash flow forecasting is one of the first documents we, as business advisors, want to see for a turnaround or restructure engagement. And if the business doesn’t have a strong cash flow, a corporate turnaround strategy becomes much harder to achieve.

Don’t let your business become another statistic. Review your cash flow regularly. And if you’re worried about your business’ solvency or ability to meet its debts when they fall due, don’t hesitate to GET IN TOUCH WITH US. Call Murray on 09-309-3222 or email murray@insightca.nz. As qualified, independent experts we can provide honest advice and help you develop a strategy to get through what can be a stressful and challenging time.

Why using a Virtual Chief Financial Officer (VCFO) makes sense!

Why using a Virtual Chief Financial Officer (VCFO) makes sense!

It’s challenging enough being a business owner, even more so when you’re having to deal with endless issues day after day, or trying to grow or even start your business, or simply trying to survive through tougher times.

Dealing with everything that is going on in your business can be a burden, is quite often time consuming, and something that some owners struggle with and understandably so. Not everyone is good at everything or has the time to focus on all aspects of a business and do it well. You got into business in the first place because you were good at what you do and wanted to make something of it, but running a business quite often involves a lot more.

Most business owners quickly build a support network around them that includes lawyers and accountants, insurance brokers and bankers, to use as and when they are needed. You may even have a book keeper too to handle the accounts and administration, a time consuming but important function.

But what about support around making key business decisions, about making changes to your business, about exploring new investment opportunities or deciding how to improve business performance and profitability. Some accountants can take up that responsibility, but not all. I don’t mean that in a derogatory way, I mean that from the perspective of being able to do it when you want it done, not when they can free up time to do it, i.e. they work to your schedule, not you to theirs. (more…)

Why knowing your break-even point is so important

Why knowing your break-even point is so important

Today in business it’s important to get off to the right start, know what you are doing and what is required to generate a profit. To this end one of the first measures of business performance is to understand what your break-even point is.

 

The break-even point is essentially your minimum target to attain. Once this target is reached, and assuming your mix of fixed and variable costs hasn’t changed, any additional sales will generate a profit. To understand at a high level what that number is, is important, because it can then be broken down into units, products or service packages that are need to be produced and sold to cover your costs.

By default, it forms the basis of your first and ongoing plans. It’s a disciplines all business owners should master.

Why is Break-even point so important?

  • It gives you a point of focus, your minimum financial & operational performance level.
  • It provides an insight into the characteristics of your true cost base, which costs are fixed and which vary depending on your level of income or production.
  • It provides an opportunity to review what optimum mix of products or services works for your business.
  • It highlights the financial performance standards that need to be reached to start making money.
  • It forms the basis for key pricing decisions and volume considerations in running your business.
  • Its an important consideration when looking at new investment and the opportunities that may bring. (more…)