Understanding Break Even and Cash Break Even in a Tradie Business: Knowing your break-even point is a crucial aspect of running a successful tradie business. It helps you determine the minimum level of sales needed to cover all your costs and expenses. Additionally, understanding CASH break-even goes a step further by considering financial obligations like loan repayments and taxes. Let’s delve into the concepts of break even and cash break even and how you can calculate them for your business. Break Even Point: The break-even point is the level of sales at which your total revenue equals your total costs, resulting in zero profit. In other words, you’re covering all your expenses, but you’re not making any profit either. This information is essential because it acts as a safety net, allowing you to sleep easy during periods of declining sales. Knowing your break-even point helps you set realistic sales targets … Read more
Read MoreHow Can You Be Making A Profit But Not Have Any Cash? As a tradesman or small business owner, you might wonder how you can make a profit, yet still have no cash available. It’s a common concern, and I’m here to simplify the explanation. Let’s say your profit and loss statement in Xero or another accounting system shows a profit, but your cash is low. The reason for this disconnect is that your profit and loss statement doesn’t include certain essential factors that impact your cash flow. These factors are: Taxes: Any taxes you pay, like instalment tax or withholding tax, don’t show up in your profit and loss statement. This means the money goes directly out of your account. Debtors: If you have unpaid outstanding invoices from completed work (receivables or debtors), it can tie up your cash. Even though you’ve earned the money, you haven’t received it … Read more
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Reinvesting Back Into Your Business For Business Growth Today, I want to talk about how much should you reinvest back into your business? Big companies quite often state in their financial reports that, say, 50% or 60%, 40% is distributed, and the rest is retained for business growth. But when it comes down to small businesses, we don’t normally have an idea in our mind of exactly how much money should be retained in the business and how much should be distributed. So this is my recommendation for small business owners, especially around the trades and things like that. It does depend on, I guess, their growth plans in the business and whether they forecast to grow a lot and hence need more cash to do so. But just on a provisional level or nominal amount, think about 50/50. Think about distributing 50% of profits and then retaining 50% in … Read more
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When you’re buying equipment, should you finance it or should you pay for it out of cash? Now, obviously it depends on how much it really is, but here’s a perspective for you. There’s a business that I’ve worked with for quite a long time and they’re doing okay, but they’ve never actually pulled a lot of money out of the business. That’s because they’re endlessly buying more equipment and renovating offices and machinery and the like. You might say, “Well, that’s supporting the growth of the business,” But, it means they haven’t pulled money out. Another option of buying a new piece of equipment and financing it, it means that you can take the money out of the business. But, there’s some pros and cons there. For example, if you’re financing equipment, it’s probably going to be a higher interest rate, but the benefit is that at least it’s … Read more
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How Much Money Should I Take From My Business For Me? What I want to talk about today is the mindset of a business owner, with respect to the amount of resources it requires. You see, a great business in my view is that you put not much time into, not much money, and it churns lots of cash out. And in reality, that’s a pretty tall order. And especially with when you’re talking about trades business and things that I kind of work with. They all put lots of labor and lots of money into equipment and things like that. But I’ve met many business owners recently that have spent many years working hard in their business and growing assets in their business, but they’ve never actually taken out any more than a wage. Don’t be a miser. I see that as a big failure, because what about paying … Read more
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As a business owner, understanding what is in your Balance Sheet is fundamental in growing a great business. This video discusses what things are and why in your Balance Sheet.
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As a business owner, understanding what is in your Profit and Loss is fundamental in growing a great business. This video discusses what I like to see in a Profit and Loss for a small business.
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Have you even wondered how many sales or turnover you need to know that you are not losing money? Or if you are purchasing a new piece of equipment, how much work it needs to do to make it pay? Or a sales person, how many sales they make to cover their costs?
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How much you pay yourself as a business owner will have a remarkable impact on your personal and professional life. Many business owners struggle with the concept of paying themselves a wage because they think, as the owner, they should only be taking profits.
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