Let’s Get Down to Business podcast | Episode 3 out now!

The Micawber principle and your real break-even point

Every trainee accountant learns in the first 6 months that when a client refers to their “wages”, they’re not actually talking about wages in the PAYE sense. What they are actually referring to is the amount they need to take each month to pay for their living costs.

Everyone has a different number. Some people live frugally, others have large commitments on cars, mortgages, school fees, ex-spouses and a whole range of direct debits.

No matter how successful you are, the Micawber principle (from Charles Dickens book, David Copperfield) will always apply:

“Annual income 20 pounds, annual expenditure 19 pounds, 19 shillings and sixpence, result happiness.
Annual income 20 pounds, annual expenditure 20 pounds ought and six, result misery”

The trouble is that most business owners are so busy, that Mr Micawber’s “misery” creeps up slowly. It’s easy to increase your outgoings when times are good. Not so easy to reduce them when times are hard.

A4G partner Josh Curties sums it up nicely: 

“Understanding your personal financial requirements is not just paying the end of month bills. It’s also having enough for the holidays, luxuries and rewards you need to justify to the family all those hours you put in!

But many business owners don’t know how much they need to earn, let alone turn that into sales targets they can use each week.

It’s the most fundamental thing business owners need to have a grasp on.”

In this week’s episode of Let’s Get Down to Business, hosted by Charlotte, Josh explains how to calculate your real break-even point and what things have an impact on it, including:

•    Your lifestyle
•    Seasonality
•    Debts
•    Overheads
•    Profit margins and pricing changes

Listen here, or search ‘Let’s Get Down to Business’ wherever you get your podcasts.