breakeven analysis

When Can You Expect a Profit?

In business, making good decisions is often the difference between success and failure.  Do you rely on gut, numbers or maybe a combination of both?  There are a lot of tools to help, but one of my favorites is a breakeven analysis.

What is Breakeven Analysis?

Breakeven analysis is used to determine when you will be able to cover costs and begin to make a profit from your business investments.  You may have used it when starting your business to determine how much sales or revenue you needed to cover your fixed costs or overhead.

It’s helpful before starting a business.  It’s just as important as your business grows and projections are replaced with reality — actual numbers. But it’s also helpful when making decisions on a variety of issues – Should I:

  • Invest in a marketing campaign, website or social media marketing?
  • Hire additional staff to support our growth?
  • Outsource a project or task to free up my time for important growth initiatives?
  • Purchase a new piece of equipment?
  • Upgrade our computers or phone systems?
  • Invest in technology to support growth?

While ROI is often used for many of these decisions, you can also use a breakeven analysis to answer the question “When will I begin to make a profit from this investment”?

How to Calculate Breakeven

To do a break-even analysis, you need to know two things. First, the cost associated with your investment decision. Second, your gross profit margin (%).

To calculate the break-even revenue, divide the cost by the gross profit margin percentage.  For example, if cost is $5,000 and your margin is 45%, your break-even revenue is $5,000 / .45 or $11,111.  In this case, you will begin making a profit when you hit $11,111 in sales.

For help calculating gross margin, check out my blog post, Gross Margin: What You Need to Know to Avoid Disaster.

How Many Customers Do I Need?

Clients also find it helpful to look at the break-even point from a number of customers perspective.  You can do this if you know (or calculate) the average dollar sale or transaction for your customers.

To determine the customer break-even number, simply divide the revenue break-even (above) by the average transaction amount.  Example:  If the average customer sale for the above business is $283, the customer break-even is $11,111 / $283 or 39.3 (40) customers.

Decision Time

Once you calculate the breakeven, it’s decision time.  Here are a few questions to ask yourself:

  1. Is the breakeven reasonable and achievable based on the investment you are making?
  2. If the incremental sales include new customers, what is the potential lifetime value of these new customers?  How does this impact your decision?
  3. How does this investment compare with past initiatives or others you may be considering now?  Business is often about trade-offs and priorities.

Knowing when you can expect to see a profit can be a powerful decision-making tool.  Use a break-even analysis to help you figure it out.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com

nurture prospects

4 Tips For New Entrepreneurs

Tips for new entrepreneursAt a recent event, I spoke with a woman who was considering starting her own business – and looking for some suggestions. While we discussed the need for goals and an actionable plan, I also recommended a few books that are helpful for new entrepreneurs, including Ken Blanchard’s One-Minute Entrepreneur.

If you are just getting started, One-Minute Entrepreneur is full of helpful insights for new entrepreneurs. Of course, seasoned business owners will also benefit from a little reminder!

4 Rules for Entrepreneur Success

  • Sales have to exceed expenses.  Build expenses as you build customers.
  • Collect your bills.  Be reasonable, but don’t be your customers’ banker.
  • Take care of your customers.  They pay the bills and write your checks.  You work for them!
  • Take care of your people.  They are your company.  When you shut your doors at the end of the day and your people go home, your business goes with them.

These may sound obvious, especially to the seasoned veteran. But in the quest for business growth or increased pressure from daily operations, it’s easy to forget these basic concepts. Sales are important, but profit and cash flow are king. Payment options and terms may be necessary to close sales, but let go of customers who pay late or after a lot of follow-ups.  Finally, if you take care of your people, they will take care of your customers.  Then everyone wins!

If you haven’t read the One-Minute Entrepreneur, check it out in digital or print.  For my list of other recommended books for entrepreneurs, click here.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com

nurture prospects

5 Ways to Increase Your Gross Profit Margin

How to Increase Gross Profit MarginWhen it comes to improving the bottom line profit, 9 out of 10 small business owners tell me they need to increase the number of customers or reduce their expenses. Funny how they rarely mention the need to improve their gross profit margin.

Whether you sell products or services, your gross profit margin is a key profit lever in your business. So here are five ways to increase yours:

  • Promote the heck out of premium or higher margin products. A lot of small businesses promote lower-margin products and services, then try to up-sell the customer into something better. Why not do the opposite. Use your marketing budget to support sales of the good stuff — and let lower margin options become the alternate for those who can’t afford the best.
  • Look for ways to reduce product or service delivery costs so more profit falls to the bottom line. Renegotiate with vendors, eliminate slow-moving products or streamline your delivery procedures to reduce labor costs.
  • Find alternate, cost-effective ways to get your products or services to customers – joint ventures or the web are just a few.
  • Identify effective ways to add value that customers will pay for – so you can raise prices more than the cost of the value added. Not sure what you can add? Talk to your customers.
  • Differentiate yourself so you stop competing on price. Give them other reasons. What do you do well? What makes you better than your competitors? Price is certainly one consideration – don’t make it the only one.

Here’s one more to consider.  When it comes to pricing, know the difference between markup and margin.  They are not the same and a mistake here will cost you a lot of money on the bottom line. To learn more about this topic, check out my article on markup versus margin.

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marketing results

5 Marketing Mistakes To Avoid

In my earlier post, 4 Steps to Create Ads That Sell, we discussed how the AIDA system can help you create better advertising campaigns – the kind that get attention, build interest and encourage action. While compelling messages are important, they work best if you avoid some of these common marketing mistakes.

Lack of Consistency. If your marketing efforts look more like a roller coaster, with lots of peaks and valleys, so will your results. Having a lot of strategies that you implement periodically (or when sales drop) is a waste of time and money.  Choose fewer strategies, make them efficient and do them consistently.  Over the long-run, they will pay bigger dividends.

No Synergy. Getting your message out there and making it stick often requires multiple touches or contacts. The same message, communicated effectively through a variety of ways creates synergy and often produces better results.  If you depend on digital marketing, like email and social media, complement it with offline strategies such as direct mail, print, networking, press releases, etc.

Here’s a bonus. You can actually save time and money using this approach.  With a little tweaking or re-purposing, your email campaign can easily be turned into a direct mail piece or press release.  Don’t depend on one method; build synergy in your campaigns.

Guess What Works. Why spend money on advertising that doesn’t generate sales or revenue. Advertising is an investment and should produce a positive return. If you track where leads (and sales) come from and know your cost, you can easily determine what’s working and what’s not. Do more of what works and eliminate the ones that rob your time and money. Learn to test and measure – because what you measure, you can improve.

Try to Serve Everyone. Recognize what you do well – and go after prospects who want and need what you offer.  Sounds simple, but if your advertising is not targeted it is likely not very effective.  Why?  Because it’s difficult to create a compelling message for the ‘universe’.  The requirements of a small business are very different from a large one.  The needs of parents with young children are unlike parents in empty-nest households.  Some of your customers want convenience, others prefer quality or savings.   If you want to get more from your advertising, target smaller groups or niches – and focus on what solutions you can bring to them.

Free is Not Free.  Your time has a cost that you must recognize when you consider marketing. Some strategies like networking and social media, have a minimal money outlay but require time.  Others like direct mail and print have higher dollar outlays but little of your time.    New businesses often have more time than money, so low-cost methods are attractive.  Find a balance as you grow – time is money so use it wisely.

Marketing is an investment in your business.  Make yours payoff by avoiding these common mistakes.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com

nurture prospects

Taxes: Common Mistakes Business Owners Should Avoid

Common Tax Mistakes Business Owners Should AvoidEach year tax laws change.  Since most businesses are pass-through entities, profits are passed through to the owner(s) and taxed at individual income tax rates.   It’s why I recommend my clients talk with their accountant before year-end.  It helps them develop options to legally reduce liability and minimize tax payment surprises.

According to Ray Giunta, CPA and partner at Baratz and Associates, here are some common mistakes small businesses want to avoid when it comes to taxes.

Tax Planning in January.  If you wait until the new year to talk to your accountant, you will likely lose the opportunity to make any changes that could potentially reduce your tax liability.   Adjusted gross income thresholds on itemized deductions, exemptions, capital gains and Medicare tax thresholds have all changed this year.  Take the time to talk with your accountant and work up some projections to avoid surprises at tax time.

Poor Record-keeping.  This often represents missed opportunities for deductions.  Some common ones include automobile logs and travel and entertainment substantiation.  Keep receipts and include descriptions, purpose, and people (for entertainment).  Categorize expenses properly in your financial management system.  A bookkeeper or accountant can help with this.

Poor Business Decisions.   Don’t let tax considerations get in the way of sound business decisions. Taking actions that minimize tax liability at the expense of cash flow or long-term growth may put your business in jeopardy.  If you are uncertain, talk to your accountant before you take action.

Ignoring Miscellaneous Tax Obligations.  Federal and state income taxes are obvious, but make sure you know and understand the requirements relating to local taxes, business use taxes, state nexus taxes, sales taxes and personal property taxes.  They all impact your business and personal wealth.

Choosing an Accountant

Selecting a trusted advisor (accountant) for your business is important.  They not only have access to your financial information but can help guide you in making sound business and personal financial decisions.  Reputation, price, services offered, responsiveness and responsibility are all factors to consider.  Here’s a list of questions I find helpful when referring business owners to an accountant or CPA:

  • Do they have experience and knowledge working with others in your industry?
  • Do they have capabilities beyond simple tax preparation such as estate, gift and trust expertise?
  • What is their reputation in the business community – are they a trusted advisor for others you know?
  • Do they have credibility with banking and bonding institutions?  This is helpful when you need business financing and/or personal loans.
  • Do they have the capabilities to service growing businesses? As your business grows and expands, it becomes more complex – so you want an accountant who is ready and able to guide you.
Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com

National Small Business Week

10 Ways to Ramp Up Success

In celebration of National Small Business Week, I  wanted to acknowledge all the small business owners who make a difference in our communities and impact the lives of so many people.  Your persistence, innovation and commitment to serve others have contributed to our past prosperity – and will continue to play a big role in our future economic recovery.

So hats off to all of you.  And while I believe many small businesses have the potential to be better and stronger than they are today, I am certain you have what it takes to achieve success.

10 Ways To Ramp Up Success
  • Have an Actionable Plan
  • Think Long-Term Value
  • Focus on Results
  • Be a Lifetime Learner
  • Speak the Language of Business
  • Leverage Your Business
  • Niche: Think Small to Grow Big
  • Create Profitable Growth
  • Give Your Products a Facelift
  • Create Raving Fans

For more on this topic and some practical suggestions, read my full article, 10 Ways To Create a Successful Business.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com

Value

Business Value: 7 Ways To Maximize Yours

Have you ever wondered what your business is worth? While profitability will certainly contribute to the business value, many small business owners are surprised to learn that profit alone is not enough – until it’s too late.

If you want to maximize the business value today and the sales price in the future, you must create a business that will operate effectively without you. The more dependent it is on you, the less value it will have to someone else.

Whether you want to increase the value today, turn it into a passive income stream or sell it outright to fund your retirement, it’s time to start thinking like a potential buyer. Here are some areas you should consider:

Customer Diversity. If a large part of your business is dependent on a small number of customers, your business will have less value. Lose one of these customers and the sales and profit are at risk. Start focusing on diversification.

Systematization. A business where processes are streamlined and documented will always be more attractive and more valuable. Make sure you have written systems for all the critical business activities and daily operations so tasks can be done consistently and quickly by anyone. No one person, especially the owner, is vital to the successful running of the business.

Recurring and Repeat Revenue. All revenue is not the same. Revenue that is linked to contracts or agreements is more valuable. Repeat business, based on high customer retention rates, is also more valuable. Focus on retention and look to create some recurring revenue streams in your business.

Unique Products, Services or Technology. If others can easily replicate what you do, then your business will be perceived by others as a ‘me too’ business. Know what makes your business unique and communicate this uniqueness effectively. Your business will be more attractive – and likely less dependent on price.

Product Diversity. If your business is heavily dependent on one product or service, then future projected revenue may be riskier and less valuable. Look for opportunities to expand your products and services or package them in new or different ways.

People – Your Team. The right people, with defined roles and clear goals, are a key to getting results. Make sure you have a system for hiring, training and developing quality people. Ensure everyone knows the goals for the business and understands their role in delivering it.

Bookkeeping & Financials. Your financial records are a strong indication of how the business was run in the past. A good financial management system, like Quick Books, set up properly, maintained and updated will help you run your business better today – and influence a buyer in the future. If you are not sure how to set up your system for both tax preparation and decision-making, speak with your accountant.

If you follow the above tips, you’ll be able to achieve more sales and profit from your business today and maximize the value in the future.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com