YOU ARE IN CONTROL!
Without a BREAK-EVEN POINT, you are in the dark!
The Break-Even Point is the main index that you, as an administrator, have to keep an eye on, in order to actually be able to act. Without it you don’t govern your company, it will control you badly!
Enough with the magic formulas and alphabet soup to explain what a BALANCE POINT is.
Learn bluntly and without complicated formulas what Break-Even Point is, implement it in your company, act, and take the necessary measures in advance of the facts, so that your company is profitable and perpetuates for years: Let’s go!
A break-even point (BEP) is a financial term that refers to the level of sales or revenue that a company must generate to cover all of its expenses and reach a point where it neither makes a profit nor incurs a loss. In other words, it is the point at which the total revenue earned by a company is equal to the total cost of producing and selling its products or services.
At the break-even point, a company has not yet generated any profit, but it has also not suffered any losses. Beyond the break-even point, each additional unit sold will generate a profit for the company. Knowing the break-even point can be useful for businesses as it helps them understand how much they need to sell to cover their costs and make a profit.
Break-Even Point = Revenue / Costs
- PE < 1 ==> Loss
- PE = 1 ==> Equilibrium, neither loss nor profit. But it is stagnant, it does not grow.
- PE > 1 ==> Profit, growing and will be able to invest in the future, guaranteeing its perpetuation
THE MAGIC OF BREAK-EVEN POINT
But there is magic in the Break-Even Point, which if you don’t know how to do it, it’s useless. And it’s quite simple but difficult to implement, but worth it, see:
The Break-Even Point has to be ready before the month starts, here at Vilesoft, every 20th of each month is already ready. If you know the next month’s result ten days before it starts, you have plenty of time to act and reverse a negative result or no result.
But if it’s done during or after the month already started, you can’t do anything else or little. Because it is very difficult if not impossible to “change the tire of the car while it is moving”.
PLAN IS NOT PROPHECY
We repeat here: Plan is not prophecy. Never believe that execution will go exactly as planned. The variables of processes, machines, procedures, technology, and especially people change all the time.
Therefore, keep in mind that the Break-Even Point is a financial planning tool. It is excellent, but without a Financial DRE that is able to measure the results that will occur, as soon as the next month’s daily activities begin, measure the planned day-to-day operation, check the actual results, which may not be what was designed; our Balance Point can be thwarted.
So it is essential that you have a short-term DRE, for one day or one week of operation, for example. And this frequency will vary depending on the nature of your business; to measure and adjust the course of the predicted vs. realized, so that the idealized results in the Balance Point are actually achieved.
Use the KPIs to build your DRE and ensure that your monthly management work is a PROJECT. This must be the only objective of an administrator, CEO, owner, or any other name given to the manager who manages a company. Well, every employee hired, every material and equipment purchased, every job done, every discount granted to a customer, every fair that will participate, and every penny that will be spent on advertising; should aim to reach the Breakeven Point.
THOSE WHO HAVE INFORMATION HAVE THE POWER
Treating your role as an administrator with a real project, you will know without blinking or being in doubt, each and every action you need to take in your company. From hiring one more person to how much your company is worth on the market, the information you have in the Balance Point and Financial Income Statement will answer you.
Ufa! Did you see that the work was worth it? Well, I believe it will solve and answer the big questions that we administrators have every day, having to prioritize everything that is always screaming as the most important.
The answer then is, to treat your work as a manager like a Monthly Project, and like any project, it is essential that it has a beginning, middle, and end. Otherwise, it will become a ‘soap opera’ and just useless paperwork. That is, every month you as an administrator have a well-defined project in the following structure:
- Start: Drawing up the Break Even Point – it has to be ready by the 20th of each month at the latest
- Middle: Application of KPIs to feed the periodic Financial Income Statement – at least daily
- End: Conclude the project, closing the financial statement for the month executed – up to the 5th of each month at the most
Do not play with these phases, just the Balance Point, beautiful, perfect is not enough. And as we’ve always said:
Money doesn’t accept challenges, it throws you to the ground without pushing.
A GOOD ERP TO HELP WITH THE DATA FOR CALCULATING THE BREAK-EVEN POINT, KPI, and DRE
Having a good ERP (business management software) will help you a lot to obtain cost data: expected expenses, and estimated expenses, and will provide you with greater accuracy, and a billing forecast very close to what will be realized.
This is because an ERP considers the history and can make projections very quickly. Well, they are just results of daily data calculations, which are already imputed and processed by the company’s departments, which are now integrated into the business management software.
ERP will also make it significantly easier to deploy and manage your KPIs. And it will instantly generate the financial DREs to keep track of the predicted x realized.
But if you don’t have management software yet, it will take a little more work, but it’s still important and it will be possible to calculate the BREAK-EVEN POINT.
If you need help using a BREAK-EVEN POINT, please contact us.
