When embarking on your new business venture, one of the first and most important concepts that you will be introduced to, very simply, is the amount of revenues you need to generate to cover your expenses. A good grasp of this is essential since even businesses with significant sales revenues can incur losses.
The starting point of any breakeven analysis is to determine your businesses variable costs which are effectively costs that vary with each product made. These include the materials, packaging, labels, shipping etc. Next is to determine fixed costs which can include rent of the premises, salaries paid to employees, office/computer expenses, subscriptions, bank fees, professional fees (paid to accountants and lawyers etc), supplies, telephone and utilities and anything else that is specific to the business for which a fixed amount is paid. Note that this can also include direct costs like labour and machinery since the inputs of these cost do not vary with the output i.e. volume of product sold.Read More