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Break even

I will begin today’s conversation, it would seem, from a completely different, but, believe me, a very important point. A lot of mistakes are made by both beginners and existing entrepreneurs when planning their business, when they ineptly try to use knowledge derived from academic textbooks in their calculations, and almost all textbooks on business planning and economic analysis have a section devoted to the so-called break-even point. business. The essence of it (section) is as follows. All expenses (textbooks “tell us”) are divided into variables and fixed costs.
Variables are those costs that increase in proportion to the growth in production or sales. As a rule, they include the cost of raw materials and materials, the purchase of goods, piecework wages. A permanent – this is the part of the cost, which does not depend on the volume of production or sales (salary AUP, rental of premises, utility costs for office, stationery, etc.).
Based on this, the break-even volume of production (sales) is calculated according to the following algorithm: for example, fixed costs are 1,000 rubles, variables per unit of the product are 100 rubles, and the selling price is 120 rubles. By selling 50 units of the product, we will cover our fixed costs, i.e. “Leave” to break-even point. Each next unit sold will bring us 20 rubles of profit. It would seem that everything is simple: they sold 100 units – they got 1000 rubles of profit, 150 units – 2000 rubles, etc. But there is one “but” …
This happens only in textbooks, in life everything is different. In a real business, there are no fixed costs, all costs change with changes in production or sales, only at different rates.
The “five wallets rule” divides expenses not into fixed and variable, but into the following:
Cost – the cost of acquiring someone else’s value, not created by us;
“Current spending purse” or “Today’s purse”, which includes payment of all that, without which the daily functioning of the value creation process is impossible;
“Development purse” or “Tomorrow’s purse”, from which expenses directed “to tomorrow” are paid;
“Salary wallets”, which we have already disassembled in detail in the previous numbers.
Accordingly, the break-even point for an entrepreneur according to the “Five wallets rule” is quite different from what was described above. And what about?
numbering-small.pngLive minimum or alternative opportunity
We have already talked about the official subsistence level set by the state. An entrepreneur is also a person, and he also has his own cost of living. The only difference is that this minimum is established not by the state, but by the entrepreneur himself. And if his monthly expenses (as a person) for a family, food, an apartment and a car are 30,000 rubles or a bit more, then this is the minimum income an entrepreneur needs for life. Of course, due to 30,000 rubles of income, the business is not started, it is the salary of some of our future employees, but nevertheless, this indicator (your living wage) should always be known as a guide for the most pessimistic (unprofitable) plan.
The point of break-even for an entrepreneur is the size of the possible alternative income. This may be the salary of an employee (and most entrepreneurs are highly qualified, hence expensive specialists), or another matter, or some calculation of the value of their temporary resources, which the entrepreneur invests in the business. It is temporary, since the assessment of entrepreneurial abilities is a priori subjective exercise. So this very indicator of alternative income is an entrepreneurial break-even point! If your business brings you less alternative income – you are at a loss!

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What attracts work in Israel?
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