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What is my Break Even Point?
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Determining the breakeven point within your farming business is an excellent key performance measure, known as a KPI. Knowing this helps you adjust and adapt to each season – not only at the start of the season but throughout, as things may change along the way.
What does breakeven point mean?
In your farming business it is the milk price that is needed to cover its costs or outgoings, without losing or making any money within the financial year or season – therefore breaking even. Once the breakeven point is determined you can then adjust your income, via production or other off farm income streams, or change your expenditure, if possible, to show the change in your bottom line and therefore your breakeven point.
What are the benefits of knowing your breakeven point?
Being able to calculate your breakeven point gives you confidence with what income or production to target, or what costs and outgoings may need controlling.
This is also a good exercise to carry out as it can give you a snapshot of your overall season and what impact a change (in payout, or costs) will make.
How can I calculate my breakeven point?
Dairy Women’s Network have formulated a calculator which is a great tool to use to determine your breakeven point. It gives you the ability to type in the information that you know about your farm, such as your milk solids, along with information that you can either get from your latest financial statements or gather from your accountant – such as your farm working expenses, your tax payments, and your drawings. The calculator can be found here: https://www.dwn.co.nz/product/bemp-calculator-webinar/
In summary, when we think about your break-even point, and the break-even milk price, there are some factors that can’t be controlled. However paying particular attention to those variables that can be controlled, like your farm working expenses, gives you an opportunity to plan and make decisions. Focusing on areas such as your fertiliser plan, or what feed you are buying in puts you in the drivers seat and allows you to make changes to your farm working costs per KgMs, and gives you the ability to ensure your breakeven point is at a more manageable level.
If you’d like any further information on this, or would like help with how to calculate your breakeven point, contact us at CMK Chartered Accountants by visiting www.cmk.co.nz
