Performing business transactions is undoubtedly a tricky process. As much as possible, you have to be on top of your finances to ensure that you're actually generating income and not losing money. This is why bookkeeping and accounting are paramount in maintaining the financial health of your business. Keep in mind that accurate recording and transparent monitoring of all your financial transactions will make a difference in business decisions, boosting sales, and earning profits over time.
On a more specific note, break-even analysis is highly beneficial for owners pursuing a startup or maintaining a business. For the uninitiated, break-even point refers to when the total cost and total revenue are equal, which means there is no financial gain or loss. The ultimate goal of this analysis is to ensure that you earn more than you lose money.
In this article, we'll share four valuable benefits of performing a break-even analysis for your e-commerce business:
1. Product pricing
Product pricing is a critical aspect of ensuring that you get profit out of it. This is where the breakpoint analysis comes into the picture. Just be sure that your products' prices are within the standard market value range, which means that you don't go too high or too low in your pricing so that you won't lose customers at the same time.
2. Fixed cost analysis
Every business can't get away with fixed costs. The chances are that you're regularly paying for property rent, raw material supply, utility bills, and janitorial services. Through a break-even analysis, you'll be able to determine if some fixed costs are becoming a liability. If they are, you can resort to cost-cutting to ensure you don't have many expenditures that will hurt your business's finances in the long run.
3. Financial projections
In every given business, it's important to look forward to what lies ahead, and along with this is to come up with a financial projection. Whether you're launching a new product or setting up a new unit, it's crucial to perform a break-even analysis. Doing so is essential before its actual implementation as it will help you see if your business pursuit will make or break your business. If certain improvements need to be made beforehand, then your business won't be using up valuable resources.
4. Production motivation
Remember that break-even analysis helps you see areas of improvement in your business. Whether increasing production or reducing expenses, it will further motivate you to grow your business. Suppose you see that you're falling behind on your production. In that case, you will further encourage your employees to deliver above and beyond to generate more income for the good of your business and the benefit of all.
5. Informed business decisions
As a business owner, CEO, or manager, being informed is a valuable benefit. Through proper accounting and bookkeeping, you'll be able to base your business decisions on accurate financial reports. On a more specific note, a break-even analysis will help you find ways and means to reach—if not exceed––the break-even point for the good of your business!
At this point, you now know how highly beneficial conducting break-even analysis is for your business. As outlined above, you'll be able to take advantage of product pricing, fixed cost analysis, financial projections, production motivation, and informed decisions. With all these valuable benefits, you'll be able to ensure you earn more than you lose money to eventually grow and expand your business!
Are you looking to take advantage of the benefits of break-even analysis? Let our accountants in Australia help you out! As an online accounting firm, we provide e-commerce accounting services to help entrepreneurs reduce tax and increase profit. Get in touch with us today to book your free strategy session!