Saturday, May 16, 2009

Break Even Point

I don’t hear much about Break Even Points. Does anyone use them anymore? I know business owners want to hear about them and since I am a CFO For Hire and work for multiple business owners it is important that I listen to the business owner. During challenging economic times business owners want to know where their New break even point is. What I mean by New break even point is now that they have downsized and adjusted their expenses for this new economy it is time for us CFOs to recalculate the break even points and communicate them to the business owner. After this calculation the business owner will then know what monthly or weekly sales levels will need to be attained. It is also a good idea to provide “what if” break even point scenarios especially for different owner salaries and other moving target expenses. By the way, for the small business owner I usually calculate break even point from a cash flow standpoint versus a pure income statement standpoint.

It is an important CFO Service to provide break even analysis. Many times the CFO forgets about calculating break even points because they get tied down with other aspects of forecasting.