Do you know what the break-even amount of sales for the various operations/activities being conducted in your business?
“Break-Even Sales”: are the level of sales necessary to cover all fixed and variable expenses. This shows you the level of sales that your business needs to make to generate neither a profit nor a loss. The overall gross profit percentage that your business achieves has a significant impact on the calculated amount of sales to achieve break even.
"Fixed Expense": is an expense that does not vary relative to production or turnover within reasonable production or sales levels. Rent would normally be considered to be a fixed expense and would not vary until such time as it was necessary to obtain larger premises. Management salaries would also normally be considered as a fixed expense. Some component of staff salaries could be considered a fixed expense, but in the main staff salaries that relate to production or sales would normally be termed a “variable expense” because variable costs normally move directly in relation to increases in production or sales by the business. To calculate the break-even sales you also need to know the gross profit percentage for that particular operation within the business.
To determine your break even for a particular operation within your business, you need to prepare a list of the fixed expenses relating to the business or to that particular activity and then prepare a list of the variable expenses which relate to that activity and add the 2 totals together. Example: if the fixed costs were $195,750 and the variable costs were $392,000, the total would be $587,750. If the business was achieving a gross profit percentage of 32%, then the calculation of the breakeven sales would be as follows:
Total of Fixed and Variable Costs
Divided by Gross Profit Percentage
e.g. $587,750 divided by 32% x (100 divided by 1) = $1,836,718.
Gross Profit Percentage 32%
Gross Profit $587,750
Total of Fixed Costs and Variable Expenses $587,750
Result – No Profit/No Loss = Break Even Sales
If you would like to have a discussion with us relative to the establishment of the break-even sales for your business or operations within your business, please do not hesitate to contact the accountant in our firm with whom you normally deal.
You wouldn’t go on a cross-country holiday without looking at a roadmap to plan where you are going to stop and what sightseeing activities are available on the way, would you?
Planning a business, irrespective of the age of the business, is no different. You need to find some quiet time and sit down and think about what your business wants to achieve for the owners, management, team, customers, suppliers and the community in which you operate.
To undertake the preparation of a business plan you need to consider:
There are a number of key items to be considered in the development of a business plan including:
These are some of the items that we would assist you to consider in the preparation of a business plan for your business. In future editions of Business Plus we will supply additional information on each of these items to assist you in the analysis of your business and in the preparation of your business plan.
If you would like to have a discussion with us relative to the preparation of a business plan for 2019/20, please do not hesitate to contact the accountant in our firm with whom you normally deal.
Every so often it’s a good idea to undertake a review of your approach to your customers/clients.
We can assist you in reviewing the services that your business is offering to your customers.
Succession planning is one of those items that many business people know is important but it tends to get put off as it seems to be something in the future and there are always pressing current issues that demand attention. Does this sound like you?
Succession planning is a very personal activity for most business operators. Most of us would prefer not to really have to think about it.
However, a succession plan that is continually reviewed can assist in identifying issues that need attention, can assist with the motivation of the team in that they can gain an understanding of what the future within your business might look like for them and will assist in the professional development of many of your team members as they prepare themselves for future roles within your business.
There are many questions to be considered in the development of a succession plan that you’re happy with. These questions could include:
These are some of the questions that need to be considered in planning a succession strategy for business operators. If you would like to have a discussion with us relative to your succession planning, please do not hesitate to contact us.
Last month we commented on Shebah Rideshare, which had raised $3 million and, in so doing, broke the Australian record for the largest crowdfunding deal to date.
The crowd sourced funding intermediary for Shebah, Birchal has noted on their website that Shebah had been “dismissed by Australia’s Angel and VC Investors”.
The success of Shebah in raising capital highlights to company directors and senior management the opportunities that Crowd Sourced Funding Equity Raising is now presenting, even though the company may have been dismissed by other segments of the Australian capital market.
Crowd Sourced Funding Equity Raising Scorecard
The updated scorecard as at 23 April 2019 reveals that $28.9 million has been raised by 36 companies
If you are interested in exploring the potential for your company to be able to utilise Crowd Sourced Funding Equity Raising to raise capital of up to $5 million in a 12 month period, please don’t hesitate to contact us.
A free information webinar “Female Based Company Shows the Way” is being presented by ESS Small Business on Thursday, 23 May 2019 at 12:30pm AEST. If you wish to attend please click here.
By Andrew Geddes - AndrewGeddes.com.au
We just attended a Harry Dent seminar in Adelaide to learn what demographic based trends he reckons will impact business in Australia.
Is your senior leadership team ready to manage and lead your business through these predicted changes?
Here's a summary of Harry's research and predictions...
Two factors drive economic health more than anything else...consumer demand and urbanisation.
The continuing urbanisation of SE Asia and India will help Australia's economy through the 2020's.
Australia and NZ have immigration to thank for a higher percentage of Millennials in their populations than say Japan where growth has been stalled for decades. We will do better into the future than them re growth because of better consumer demand from young people having families. Short term pain will occur later in 2019 when both housing price and share price bubbles burst both here and in the USA.
China's economy is not sustainable with its present focus on building apartments in which no-one lives!!! Hence the switch to the Belt and Road focus. There will be another major technology influenced change over the next ten years...biomedicine and Artificial Intelligence (AI) will drive this.
Over-priced assets (shares and real estate) will have a correction as governments and central banks try to manage debt into the future. This will cause economic chaos in the short term...are you ready for the worst? Will your business survive several years of reduced demand? Have you done a risk review of this possibility? Do you have various cost reduction strategies planned and cash reserves ready? Is your Senior Leadership Team ready?
If you would like us to assist your leadership team to review your business’ preparation for challenging business conditions, please do not hesitate to contact the accountant in our organisation that you normally deal with.
Andrew Geddes, a public company director and for 11 years the chair of Greencross Ltd, has endorsed the availability of Crowd Sourced Funding Equity Raising for the benefit of small companies and medium-sized enterprises in answering some questions that were submitted to him.
Question 1: Traditionally private companies had only section 708 of the Corporations Act or IPO (Initial Public Offer) that they could utilise to raise capital. What do you think of the opportunities for capital raising that are now available for small businesses and medium-sized enterprises with turnovers up to $25 million?
Andrew Geddes’ answer: “Traditionally SMEs could have found support from angel investors, but their investments usually came at quite an expense in terms of equity required and for the fees charged. Smaller companies have had difficulties in obtaining finance.”
“Now we have a process with Crowd Sourced Funding Equity Raising and the appointment of Intermediaries by ASIC.”
“I particularly like the requirement for companies, which wish to raise capital, to have:
“All of this forces directors and senior management of companies, seeking to raise capital, to have identified what they have done about these matters if they are going to be able to raise capital.”
Question 2: As a former top 200 ASX company chair what impact do you expect Crowd Sourced Funding Equity Raising will have on the number of companies seeking to utilise IPOs in the future?
Andrew Geddes’ answer: “It costs about $500,000 minimum but more likely $1 million to do an IPO. There is a heavy emphasis on:
“Too many small companies have done IPOs because they didn’t have alternatives to raise capital – but now they do, they can utilise Crowd Sourced Funding Equity Raising which is considerably cheaper. This might be a first step – later on, if the company wishes, the company could move into the public environment and they will be better prepared to do that efficiently as they have been through the Crowd Sourced Funding Equity Raising process.”
“I think there will be a lot less IPOs and more companies using Crowd Sourced Funding Equity Raising because of the cost differential and the amount of work that is required to become a public company and then to remain a listed company.”
“Some listed companies have been taken over by private equity and removed from the Stock Exchange. I think there will be more Crowd Sourced Funding Equity Raising companies and a lot more companies will remain private because they are in control and there is a lot less cost and scrutiny from institutional investors, proxy advisors and shareholders. For these reasons I think Crowd Sourced Funding Equity Raising is going to grow.”
If you would like to discuss with us any aspect of Crowd Sourced Funding Equity Raising, please do not hesitate to contact the accountant with whom you normally deal.
Additional information on the articles contained within this issue of Business Plus+ is available to ESS BIZTOOLS' subscribers after login at www.essbiztools.com.au.
· Paper 006-010 - Break-Even Calculation
· Paper 009-010 - Planning Your Business - Small Business
· BAS5027 – CSF Intermediary Scorecard
· Paper 018-001 - Customer Service
· Paper 050-050 - Succession Planning - Why Is It Necessary?
· BAS5004 – Crowd sourced Funding Eligibility Matrix