Strong Cash Flow – Determining Your Break-even Point

Reaching a stage where your business has a strong cash flow can be very motivating, now how do you go about determining your break-even point?

A company’s break-even point is the point at which the total of fixed and variable expenses equal sales revenue. This is also the point at which profit equals zero and cash flow is neither positive nor negative but is enough to keep your business going.

Determining your break-even point accurately requires you to work hand-in-hand with your accountant because ultimately, you will also be able to see where to improve and grow your cash flow.

I personally worked with clients first came to us weak cash flow and could not determine their break-even point because their accounting records did not match their bank balances, therefore, not being able to determine the exact total expenses and income. This process in my experience requires consistency and transparency just any other accounting process and if you miss even one recording – you’re more likely to get everything else wrong.

How do you go about reducing your break-even to improve your cash flow?

For your business to be stable, it is always better to find ways of reducing your chances of breaking-even to ensure that you’re at a good cash flow position. Here are ways that I think could work for you if you’re trying to reduce the break-even point:

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1. Reduce the number of fixed costs – This can be done through cutting unnecessary expenses that are not ‘needed’ in a business such as unused equipment.

2. Reduction in variable costs and expenses – Your business can work on reducing costs such as electricity, rent, insurance, some salaries, and interests. This requires you to think carefully about how you will go about reducing these costs according to the needs of your business. 

3. Increase your selling prices. (Of course, keeping in mind that the increased selling price does not cause fewer sales.)

These factors may vary from business to business and my advice is that you speak to a professional to assist your business and calculating and determining which costs to cut or how to go about increasing your SMEs cash flow.

Still confused as to how you go about this? Message me directly and let’s take your business’ cash flow to the next level.

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