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Anne-Laure, France
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Not enough revenues...?
What should I normally do if the revenues do not cover the fixed and variable costs? What should I do if the revenues do not even cover the fixed costs?
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Godon, USA
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Not enough revenues
Having been in this situation recently in our own business I offer this;
project forward the P/L, one year, even at the high level numbers.
make several versions, optimistic, pessimistic, best guess, or most likely.
If the trend is up you may be able to borrow, get a line of credit or factor your accounts receivables.
If the trend is down or no change, then yo look to cut overheads, by sub leasing assets or property not used, substitute staff with your own efforts, (is it your company, i am making that assumption.)
Address the revenues, go get more business.
Address Act Rec, put pressure on customers to collect.
Let everyone know in the company that their income depends on urgent and coordinated effort.
Good luck
Gordon
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William Gomes, Brazil
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See marketing planning
As the first activity, review the marketing plan and change the marketing approuch. The problem can be: seasonality of demand, competing product more attractive, product price and others ..
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pradeep deo, India
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Break Even Analysis-Not Enough Revenues.
I would suggest to Anne-Laure -France-that in such a situation pl .explore the possibility of applying Lean Management Practice, developed by Toyata -Japan , which addresses (a) Reduction of Waste(b) Variability and (c) flexibility simultaniously for operational efficiency improvement..
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Luciano Bergamaschini, Italy
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Not enough revenues
Causes may be many and must be investigated (sales policy, low sales, commitment of possible distributors, of sellers, high costs, distribution costs too high, etc). One of the key strategic points however is to exactly define what business you are in, e.g. food or health, medical devices or healthcare, chemical or cosmetics, etc. This may lead to open wider perspectives for the business and to redefine the "value proposition" and the company positioning on markets complementary to the current one.
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Richard D. Cushing, USA
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Not enough revenues
You will get a much clearer picture of your situation if you back away from "variable costs" (allocations) and break down your numbers in this way:
Revenues (R) = as normally defined
Truly Variable Costs (TVC) = those costs (typically raw materials, outside services and commissions) that truly and actually vary in an absolute and direct correlation with the revenues
Operating Expenses (OE) = everything you pay out day-after-day or month-after-month that is not truly variable with revenue (this includes wage or salary labor that may work in producing revenue but their wages are not truly variable with the production of a unit of revenue)
Now, Throughput (T) = R - TVC
If T > OE, you are making some profit.
Identify your CONSTRAINT to increasing T. Remember, once you know the per-unit value of T for any product or product line, any R > TVC will produce some profit, provided the aggregate of T > OE.
Does your organization have enough CAPACITY to produce sufficient T to exceed the value of OE?
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Humberto Ochoa, United States
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Not enough revenues
What Gordon suggest is what I would do in a low revenue situation. Additions can be the use of tools to reduce expenses or cost suggested by others, as well as ways to leverage cash, not the least to consider of course.
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vincent, India
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Not enough revenue
A lot of variables that goes into the operation have to be relooked into in terms of cost cuttingor waste reduction/mangement in the case of expenses both variable and fixed and capacity enhancement in the case of revenue not only in production and also in market capacity to absorbe the additional quantity or price as the case may be.
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Vivek, India
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Not enough revenue
have seen this situation quite a few times in small & medium enterprises (SMEs). First, make your projections (optimistic, realistic, psessimistic) for revenue and drill down to bottom-line. Next (& perhaps more critical for SME), drill down to cash flow at least quarter by quarter. Revenue in P/L is Maya, cash outflow is reality. If cash flow is positive, you can allocate resources for a) sales growth b) new business areas. Pls do a detailed cash flow for the new business also. If cash flow is negative, attack the fixed cash expenses ruthlessly. Borrowings need to be channelled towards increasing your top line, as that is the only sustainable approach. If Anne-Laure runs an SME, the environment todays is extremely challenging for SMEs. Focus on minimum fixed expenses, do not stop at P/L and do C/F analysis, and aim for a situation such that high probability cash contribution match cash fixed expenses.
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Earl, USA
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Develop a Variable (Flex) Budget
I would suggest developing a Variable (Flex) Budget to drive a definitive "Break-Even" during the Forecasting / Planning activity. Fixed Costs will remain constant (as they should) for this application, but, driving the Variable Costs will enable the user to develop a Break-Even point for current planning. Additionally, One will also have the capability to measure performance; i.e., "If Actual Performance is only %70 of a Perfect Month, then, what should my "Variable Costs" be in relation and within reason?
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Alpin McGregor
freeelance, United Kingdom
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Break Even and not Enough Revenues
There are only 4 variables in break even analysis. Selling price, unit variable cost, total fixed cost and number of items sold usually described as volume of sales. If revenue is lower than fixed costs then one or a combination of the following:- increase selling price, sell more items, reduce fixed costs. Once you have identified route you will follow develop strategy to implement eg marketing to sell more at higher price.
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