My friends and I just took a R60 train to go have the best Pizza in Joburg just to find the place closed. Have you ever been shocked by a closure of a business that you thought was doing really well? Most of the time is because they never bothered with “break even”.
The break even point in business is your survival level. It’s that amount of money you need to make to survive and keep operating for another day. Any amount less than the break even level, the business is loosing money and its just a matter of time if nothing changes before it closes its door. Anything more that, your business is doing well and could potential grow.
Just like many business, we tend to ignore that level until we cannot cope on our current income levels. For me and you, living pay check to pay check is actually the same thing. If you just make it to the next pay day nursing your last N$50, then you are breaking even. If you need a pay day loan then you are making losses and if you are able to grab coffee the day before pay day, then you are probably making a profit.
So how do you work out that level? How do you get to that level? For you to break even, in simple terms , you just need enough money to cover your fixed expenses.
As a business owner, you need to think of those costs that will be there for as long as your doors are open the following months such as rent, salaries etc. The goal will then be to ensure that your sales for that months are enough to cover those costs. Its also best to communicate this to employees so that they know the level of effort required to keep their jobs. For me and my chicken lady, if we sell 10 chickens, I can sleep peacefully because that means we can pay her salaries and buy feed and medicine for the chicken.
For me and you, our income just need to be enough to cover our expenses. Any money that you borrow to buy something potentially means that you are in excess of your break even level and will need to either find means to reduce your spending or pick up a second income stream.
The takeaway here is , do not be caught offguard by the closure of your business, find that level and aim to just meet it or better even sell above it.
And for us,do we want to just to be breaking even??That feeling of having N$200 on your account a day before pay day could just be the beginning for us to move in the profit zone.