Welcome back to another episode of my podcast! Whether you're tuning in for the first time or you're a returning listener, I'm thrilled to have you here. I'm your host, Amy, and today's topic is crucial for any practice owner: understanding the difference between success and strain through the lens of break-even numbers. Let's dive in.
Many practice owners experience periods of financial strain, which can manifest as stress over finances, overwhelming busyness, or emotional exhaustion. It's a common issue but often goes undiscussed, leading many to suffer in silence. Financial strain is a quiet stress that many practice owners go through at different times.
Knowing your break-even point is essential—it's the number of clients you need to see to cover your costs without making a profit. This metric is a powerful tool that can help you avoid financial strain by ensuring you're charging enough for your services and seeing enough clients to pay for your expenses. It's that simple. Knowing this number can be helpful in many ways. When we don't know break even number.... we are leaving a lot to chance, including whether we experience success or strain.
A break-even analysis isn't just about crunching numbers; it's about gaining clarity on the health of your business. By understanding this key success factor, you can make informed decisions about pricing, planning for growth, managing your diary effectively, and setting realistic expectations for your team.
To calculate your break-even point, you'll need to know three main things:
- Your monthly expenses (including an average if they fluctuate)
- How much you charge per appointment or billable hour (take an average if you need)
- Any liabilities you're paying off
You can find these figures in your accounting records, such as your profit and loss statement. Once you have this information, you can use the following formula:
(Total Expenses + Total Liability Payments) ÷ Average Income per Appointment/Billable Hour = Break-Even Point
for example, if your expenses for the month were $35,000 and your liability payments were $5000, and you charged an average of $150 per hour, your break even would be as follows:
(35,000 + 5,000) ÷ 150 = 267
This means you would need to have 267 appointments in the diary each month to cover expenses and liabilities alone.
After calculating your break-even point, ask yourself:
- Is the number of required appointments or billable hours achievable?
- Does it align with what I need from my business?
- How can I maintain or improve this figure?
If the target seems unattainable, consider options like reviewing prices, reducing non-billable time, cutting unnecessary expenses, or adding another income earner to your practice.
It's advisable to review your break-even analysis monthly to stay on top of your financial situation. Adjustments may be necessary if you've made changes to your expenses or pricing. Always seek to understand the reasons behind any shifts in your numbers and plan accordingly.
Understanding your break-even point is more than a financial exercise; it's about empowering yourself to lead a healthy, sustainable practice. If you're eager to dive deeper into the financial aspects of running a practice, check out my online course, "Know Your Numbers," tailored for Allied Health Practice owners. You can find the link here:
https://theconnectionco.com.au/courses/know-your-numbers/
Thank you for joining me today. I hope this episode has equipped you with another valuable tool for your money toolbox. If you've tried calculating your break-even analysis, I'd love to hear about your experience. Feel free to reach out for a chat!
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