Right now, we’re all weathering an unprecedented sh*t storm. While it’s likely to swirl around us for the foreseeable future, the forecast is bright for tradies in business who double-down on getting key fundamentals right.
If you’re worried about making enough money to cover your costs right now, then you need to know your break-even point.
Break-even is the point there is no profit or loss — you break even. In the current climate, understanding break-even will help trade business owners set targets each week/day and hence ensure you thrive on the other side.
Do you know your break-even point?
What is the break-even point?
When you’ve broken even, you are neither losing money nor making money, but all your costs have been covered.
For many tradies, calculating a business break-even point is not at the top of the to-do list. In regular circumstances, you may calculate your break-even point on a quarterly basis. In these unprecedented circumstances, we recommend you work out your break-even now.
There are a number of ways you can calculate your break-even point. We’ve created a trade-specific formula, captured in the Break-Even Analysis Guide for Tradies. (Want to know more? We’ll be sharing the guide on the Lifestyle Tradie Facebook page soon. Or, why not join Kick-Ass Tradies to connect and chat with fellow tradies in business?)
For a more complex analysis, we recommend you make an appointment with your bookkeeper or accountant.
Here’s some key steps in the process:
- Start by squeezing your expenses (money going out) as tight as you can with the aim of operating a lean business enterprise.
- Go through your profit and loss statement (P&L), line by line, to see where you can make some savings.
- Review your bank statements over the last quarter, for example, and weigh up the return on investment (ROI) for every regular deduction.
If you prioritise working out your break-even point, it’ll take you one day to get a good gauge of where you’re at — which is time well spent.
Why is break-even important for tradies?
It’s one thing knowing your break-even point, next, you need to know what to do with that number. In our trade business, Dr. DRiP Plumbing, we’ve identified a daily break-even to set goals and targets for our tradies. Then, we set a stretch target that includes a profit margin.
Without knowing this number, our tradies get in their trucks every day with no goal. This means that as the trade business owner, you have no understanding about whether the business’s costs are being covered (even worse, whether the business is going backwards).
Your break-even provides clarity around expectations — and ultimately keeps people in jobs because your tradies are motivated to hit that magic number, using sales strategies we teach through Lifestyle Tradie.
How to apply break-even in your trade business
The all-important ‘how’ involves how to set these targets and communicate them with your team. This is a process we’ve streamlined over the years.
We’ll be sharing the exact steps in a comprehensive video, posted in the Kick-Ass Tradies group, if you’re keen to learn how we’ve done it.
Finally, knowing your break-even point in this crisis will provide you with the confidence to set targets and drive sales to cover your costs (at a minimum) and ride out the storm. While making a profit is always the goal in business, for now, keeping things humming along without losing any money is a positive position to be in.