Your Breakeven Point: What It Is and Why You Should Know It

Your business incurs costs in order to turn a profit. It’s the old “spend money to make money” maxim. But how much money should you spend? And when will you make a profit?

The point at which you stop losing money and start earning a profit is called the “breakeven point”. When planning your business (either at the very beginning or in any given period), knowing your breakeven point will give you a goal to work towards and some clear direction to manage your costs and prices.
Read More »

Tags: Benchmark, Breakeven Point, Business Decisions, Direction, How Much Money, Magic Number, Maxim, Relationship, Variable Expenses

Fixed, variable, direct, indirect: What the heck is my accountant talking about?

Your accountant isn’t speaking a secret language when they talk about fixed costs, variable costs, direct costs, and indirect costs. Here’s the secret decoder ring to know what they are talking about (and in a minute I’ll tell you why it matters to you):

Your business incurs costs. (You know that already!)

Read More »

Tags: Accountant, Doing Business, Elements, Fixed Cost, Indirect Cost, Indirect Costs, Lot, Lump Sum, Product Packaging, Profitable Business, Seasonal Business, Secret Decoder Ring, Secret Language, Single Unit, Variable Cost, Variable Costs, What The Heck

A Decision Tree to Weigh Investment Decisions

Running a business sometimes requires decisions to be made about what you should invest in. Do you invest in the new equipment to create Product X more efficiently? Or do you invest in the new equipment that will allow you to build a completely new line of products (“Product Y”)? If you can only invest in one of those options right now, which one is the better option?

A decision tree is handy here. I’ll give you a simple example to show you what a decision tree looks like:

Read More »

Tags: Accounting, Business Decisions, Decision Tree, Element, Finance, Handy, Investment Business, Investment Decisions, Product X, Purchasing Equipment, Running A Business

Depreciation: Which method is right for you?

If you own assets that depreciate over time, you have two choices in recording that depreciation: The “straight line” method and the “reducing balance” method.

In the straight line method, you depreciate the asset by the same amount over the life of the asset. So let’s say that you buy a piece of equipment for $10,000 and you reduce it by $1000 per year over 10 years. In the first year it’s worth $10,000; in the second year it’s worth $9,000, in the third year it’s worth $8,000, and so on.

Read More »

Tags: 10 Years, Accountant, Assets, Benefit, Depreciation Method, Economic Advantage, Lifetime, Match, Reducing Balance Method, Straight Line, Two Choices