Maximize your profit by regularly checking your ever-changing break-even point. Indeed, as the construction market changes, you’ll want to manage your break-even point, or it could come back to haunt you – Big Time! Your break- even point is figured by dividing your Total Fixed Expenses by your Gross Profit Percentage. Thus, if your fixed expenses are running $100,000, and you are earning 10%, then your break even point is $1,000,000 in sales. Most general contractors would figure their fixed expenses to be the same number as their General and Administrative Expenses. Subcontractors who use equipment would need to add their fixed equipment expense to their G&A. Those equipment payments can sneak up and bite you, IF you’re not watching.
Play with the “what-if” scenarios: What if, next year, your sales dip by 10%, or your gross margins drop by 3%? How will that affect your bottom line? It could mean you are losing money. You should figure your break-even point today. Then during this coming year, you should check it monthly, quarterly and annually. Be sure to make modifications in your business as you see it’s needed.