Do you know your break even number?
By Andrew Isaacs, CIMA Member in Practice ·
Do you know the exact point at which your business starts to make money? Most owners could not tell you, and it is the most important number they are not watching. <img class="shot" style="max-width:440px;margin:34px auto 0;display:block" src="/assets/img/blog-do-you-know-your-break-even-number-ig.jpg" width="440" loading="lazy" alt="AI Finance Partners infographic, The point your business starts making money is the most important number most owners are not watching."> <p class="shot-cap" style="text-align:center">The numbers behind this.</p>
What break even is
The level of sales you need just to cover your costs. Below it you lose money, above it you make it. The formula is simple, fixed costs divided by your contribution margin, the profit each sale leaves after its own direct cost.
Why it changes everything
Fixed costs, rent, salaries, the bills that come anyway, have to be covered before a penny of profit. Once you know your break even, every decision gets easier, because price, discount and hire are all measured against one clear line.
We work it out and track it, so you always know how far above the line you are running, and what a change in cost or price does to it.
Andrew Isaacs is a CIMA Member in Practice and Practising Certificate Holder, and the founder of AI Finance Partners, the outsourced finance function for professional services firms turning over £500k to £5m across the South East. Legal cashiering is not part of what we do.