Business By the Numbers – Part 5 – Break Even Analysis

Business By the Numbers – Part 4” discussed the importance of tracking your business by using numbers from your Balance Sheet and Profit and Loss statement to determine your Sustainable Growth Rate without increasing your debt-to-equity ratio.

 

Business Break Even Analysis

 

“Break even is the amount of sales that produces just enough revenue to cover your expenses and overhead without a loss or profit.  It is important to know the break even for the business because it will tell you in every period whether you are going to make a profit AND it tells you whether you need to reduce your overhead and by how much.

 

A very simple, close to accurate, way to approximate break even is to find the amount of sales at the current Gross Profit Margin that equals the current dollar amount of operating expenses.

 

Business Break Even Analysis Formula

 

Break Even = Fixed Expenses + Interest / Gross Margin”

Business By the Numbers Part 6 will feature Z-Score.

 
*About Vistage (from Vistage.com): Since 1957, Vistage has been bringing together successful CEOs, executives and business owners into private peer advisory groups guided by expert executive coaches, known as Vistage Chairs. This assembly of peers & expert leaders makes up Vistage Worldwide, an executive coaching organization.
 
From the beginning, our coaching Chairs have been at the heart of what makes the Vistage experience so powerful for so many members. Vistage Chairs are a distinguished group of business leaders who come to us from a wide range of industries. Some have owned businesses, many have been CEOs of domestic and international companies, and all are united by a desire to share their insight and expertise to educate other business leaders in their communities through executive business coaching.

About the Author

Jim D'Amico

My name is Jim and people usually call me Jim. Sometimes I’m called James, usually at a doctor’s office. My favorite season is Summer because I like warm, sunny weather. I also like the colors of Autumn. My favorite hobby now is reading, but in the past I spent a great deal of time with my coin collection and drawing and painting pictures. My favorite sport is baseball and the Yankees are my team. I coached baseball and softball for nearly twenty years with my three children. My favorite activity is going out to dinner, throw in a little rock music from the 60’s and early 70’s and it’s a good night. My favorite quotes: “If you think you can do a thing or think you can't do a thing, you're right.” - Henry Ford. “I have not failed. I've just found 10,000 ways that won't work.” - Thomas A. Edison. “Opportunity is missed by most people because it is dressed in overalls and looks like work.” - Thomas A. Edison.

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