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Break Even  Why Every Contractor Needs to Know It PDCA Residential Forum Advanced Shop Talk July 16, 2010
Knowing Your Break-Even Point ,[object Object],[object Object],[object Object]
What we’ll discuss today ,[object Object],[object Object],[object Object],[object Object]
Financial Best Practices ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Key Performance Indicators Factors that indicate the current and future performance of a business in areas that are critical to the company's success.
Financial KPIs ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
BEST PRACTICE GUIDE :  Breakeven Sales ,[object Object],[object Object],[object Object],[object Object]
Annual Budget Example 10% $50,000 Net Operating Profit 30% ($150,000) Overhead Expenses 5% ($25,000) Variable Expenses 45% $225,000 Gross Profit 55% ($275,000) Direct Costs $500,000 Revenue
Annual Break-Even Revenue $388,889  Break-Even Revenue 45% Divided by GP% $175,000   Total Overhead Expenses +  $150,000  Overhead Expenses $25,000  Variable Expenses
Monthly Budget Example 10% $4,800 Net Operating Profit 30% ($14,400) Overhead Expenses 5% ($2,400) Variable Expenses 45% $21,600 Gross Profit 55% ($26,400) Direct Costs $48,000 Revenue
Monthly Budget Break-Even $37,333  Break-Even Revenue 45% Divided by GP% $16,800  Total  $14,400  Overhead Expenses $2,400  Variable Expenses
Calculating Break-Even Hours ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
What about other expenses? ,[object Object],[object Object],[object Object],[object Object]
Changed Break-Even  Break-Even Hours are now 780 for the month $39,000  Break-Even Revenue 45% Divided by GP% $17,550  Total  $750  Vehicle Loan  $14,400  Overhead Expenses $2,400  Variable Expenses
What if your GP% decreases? Break-Even just increased by almost $5,000!  $43,875  Break-Even Revenue 40% Divided by GP% $17,550  Total  $750  Vehicle Loan  $14,400  Overhead Expenses $2,400  Variable Expenses
Using Break-Even Analysis to Add Infrastructure How much more revenue do you need for new overhead to at least pay for itself?
Adding a new overhead position $123,778 Break-Even 45% Divided by GP% $55,700 Total  $600 Cell Phone $6,000 Vehicle Expense $3,900 Benefits $5,200 Payroll Tax/WC $40,000 Sales Salary
When to lower Break-Even ,[object Object],[object Object],[object Object]
Ways to Reduce Break-Even ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Operational Steps ,[object Object],[object Object],[object Object],[object Object]
Operational Steps – the first round ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Operational Steps – the next round ,[object Object],[object Object],[object Object],[object Object]
When to Increase Overhead  ,[object Object],[object Object],[object Object]
Increasing Costs can raise your Break-Even (in a good way) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Stay on top of Break-Even  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Knowledge is power ,[object Object]
Contact us to help get your business On Target for success in 2010!   ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Break Even

  • 1. Break Even Why Every Contractor Needs to Know It PDCA Residential Forum Advanced Shop Talk July 16, 2010
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  • 5. Key Performance Indicators Factors that indicate the current and future performance of a business in areas that are critical to the company's success.
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  • 8. Annual Budget Example 10% $50,000 Net Operating Profit 30% ($150,000) Overhead Expenses 5% ($25,000) Variable Expenses 45% $225,000 Gross Profit 55% ($275,000) Direct Costs $500,000 Revenue
  • 9. Annual Break-Even Revenue $388,889 Break-Even Revenue 45% Divided by GP% $175,000 Total Overhead Expenses + $150,000 Overhead Expenses $25,000 Variable Expenses
  • 10. Monthly Budget Example 10% $4,800 Net Operating Profit 30% ($14,400) Overhead Expenses 5% ($2,400) Variable Expenses 45% $21,600 Gross Profit 55% ($26,400) Direct Costs $48,000 Revenue
  • 11. Monthly Budget Break-Even $37,333 Break-Even Revenue 45% Divided by GP% $16,800 Total $14,400 Overhead Expenses $2,400 Variable Expenses
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  • 14. Changed Break-Even Break-Even Hours are now 780 for the month $39,000 Break-Even Revenue 45% Divided by GP% $17,550 Total $750 Vehicle Loan $14,400 Overhead Expenses $2,400 Variable Expenses
  • 15. What if your GP% decreases? Break-Even just increased by almost $5,000! $43,875 Break-Even Revenue 40% Divided by GP% $17,550 Total $750 Vehicle Loan $14,400 Overhead Expenses $2,400 Variable Expenses
  • 16. Using Break-Even Analysis to Add Infrastructure How much more revenue do you need for new overhead to at least pay for itself?
  • 17. Adding a new overhead position $123,778 Break-Even 45% Divided by GP% $55,700 Total $600 Cell Phone $6,000 Vehicle Expense $3,900 Benefits $5,200 Payroll Tax/WC $40,000 Sales Salary
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Notas del editor

  1. So, coming back to our topic, what is the main financial responsibility of management and what do these key financial indicators have to do with it? In broad outline, the function of management is to:   Increase sales revenue by increasing price and/or volume While… Keeping variable costs down (at least equal to or below the rate of increase in revenue) And… Achieving greater productivity from the resources which are financed through overheads And… Ensuring that tight control is exercised over assets (in particular stock and debtors) So that… CASH FLOW INCREASES SIMULTANEOUSLY WITH THE INCREASE IN NET PROFIT.