Break Even Analysis

Break Even Analysis

Break Even Analysis

In our October 2017 Newsletter we discussed calculations of break
even analysis when purchasing a new asset.

Break even analysis can also be used when deciding to incur
additional costs. For example if the cost of employing a new
staff member will be $70,000 (consider all costs including ACC,
leave, KiwiSaver).

If gross profit is around 50% sales will need to increase by $140,000 to
cover the cost of the new employee.
It could be that orders are not being completed on time and customers are getting frustrated. For a company with $800,000 of annual sales, if they can retain 10% of their annual sales through improved customer service they will retain $40,000 of gross profit ($800,000 x 10% x 50% gross margin).

If the new employee can further assist to improve the annual gross profit by 2% (say $16,000 per year) they have contributed a total of $56,000 towards the annual costs of employment. In addition if they have been able to free up some of the owner’s time to work on the business this could further justify the cost.

For further information see our October 2017 Newsletter

Tuesday, 17th July 2018


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"As a real estate salesperson operating in Hamilton, I have found it vital to have a great accountant. Not content with selling just the occasional property, I have been single-minded about operating an efficient, healthy and growing business. This has meant performing at high levels while providing outstanding service to every client. To help me achieve this, I have invested in building a team of support staff. We see DB Chartered Accountants as an integral part of our team as they are a “one stop shop” looking after all the book-keeping aspects of the business.

DB Chartered Accountants take care of all my tax and reporting requirements, from GST, KiwiSaver contributions and PAYE to end of year financials and taxation advice. A lot of my business growth now revolves around time management. By working with DB Chartered Accountants my time input into the accounting side of the business is now negligible, leaving me free to work on my core business rather than be bogged down by the “red tape” aspects.

I enjoy working with the firm and am known by name by most of the staff which gives me confidence that I am being properly looked after. I appreciate being able to pick up the phone and call when I have questions. I would recommend working with DB Chartered Accountants without hesitation."

 
Vaughan Heslop,
Lodge Real Estate MREINZ
REINZ Top 10 Regional Salesperson Award Winner
Waikato/Bay of Plenty/Taupo Districts
 
 
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