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Break Even Analysis for a profitable business operations

As we are approaching dawn of 2021, start of a new decade it almost feels like we all are beginning afresh in the new year due to the disruption COVID has created in 2020. I am sure there are a lot of lessons learnt and will carry all that into the new decade.

However, one thing that is very simple that all business owners need to consider is looking closely at their operations and identifying the important factors that I believe would provide a good insight. It is break even analysis. A lot of people think break even analysis is only applicable to manufacturing and product based businesses. But, I believe it is as applicable to any business when you assume that business is one unit of production. Let me explain. 🙂

Similar to a product, every business will have fixed costs, variable costs, target profit for a specific period and average sales revenue. Although one may think that it is difficult to ascertain certain metrics for businesses. However, I believe that is what makes this such an important exercise for businesses to undertake.

As can be seen in the chart, profit takes only small part in the chart. Various costs takes most of the space because that is what makes up of any business. And by analysing these costs provides business owners important levers that can be managed efficiently to maximise profits in your business.

This also allows the business owner to set targets for their business for a new year and then break it down to different periods and create milestones to track the progress.

This also allows business owners to understand ROI of each of their investment (or expenditure). Of course there will be controllable costs and uncontrollable costs in every business. It is management of controllable costs what makes the difference between a profitable business and unprofitable business.

Get your accountants or bookkeepers to help you out with this or feel free to reach out to me. Happy to chat. 🙂

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4 Important faculties to master to succeed in business

#Success formula for a small business owner or #entrepreneur is in their ability to learn, understand and manage the below 4 aspects.

Firstly they need to work on their #emotionalinteligence. It is their ability to learn, grasp, synthesise, identify patterns, become self aware, self regulate, visualise, understand mindsets etc. Some of it can be born trait but a lot of it can be learnt.

Secondly they need to work on their #strategicplanning and #execution. It is the ability to look beyond few years and objectively set a #vision for their business. Small businesses fail due to lack of this intent. This has to come naturally to them. Business coaches can help them but it is the business owner who needs to see that future vision and they need to believe in it.

Thirdly they need to work on their #financialliteracy. It is their ability to understand how the business is making money. This sounds simple but as the business grows it all becomes complicated. So, by having right financial literacy they can relate back to those basics.

Fourthly they need to work on their #speciality. This might sound too obvious but often either completely ignored or spent all their time on it. With technology disruption this is in constant focus.

#smallbusiness #growthmindset