Imagine you are starting a business and feeling the stress. When can you breathe in relief? When you reach your break even point.
The break-even point is one of the simplest financial analyses. No complicated - and almost no trivial - math is included. This concept is so fundamental that it has its own Wikipedia page. "The point at which total cost and total revenue are equal" is a short and precise description.
Taking inspiration from budgeting, it can be transcribed into equations:
Price x Volume = Fixed Costs + Variable Costs x Volume or Volume = Fixed Costs/(Price - Variable Costs)
When starting your business, your first milestone is securing a first customer. Then it's having them pay more than they individually cost you. You want to have positive unit contributing margin (price - variable costs). Finally, you aim to cover your fixed costs with this contribution margin.
For small entrepreneurs, determining the break-even point can be slightly more complex. While the business view is simple and can be summarised by the equations above, it does have a blind spot in fixed costs: How much do you value your time?
The first milestone towards business success is of course a point where you do not have to contribute money to run it. In that case you take your fixed costs from company accounts.
if you want your business to sustain you personally, you must include your personal expenses in the fixed costs. This adjustment reveals the break-even point where both you and your business can survive on the generated cash flow.
And if you really want to be happy, grow from there. With a bit of luck, you will soon exceed your [[opportunity costs]].