Protect Against Collisions and More If you drive a car in the United States, liability insurance must cover it. This type of policy pays for medical and property damage resulting from a vehicular accident. You can also purchase comprehensive and collision insurance to cover other costs. These additional coverages help protect the value of your car should it be damaged. If you are calculating how much it will cost to buy a car, you need to take into consideration the cost of insurance as well. In this article, we’ll review the basics of car insurance and the best auto insurance companies in America, including costs, pros and cons. This is a brief introduction to automobile coverage. Liability Coverage When an accident occurs, liability insurance covers you, household members and authorized drivers for the costs associated with property damage and bodily injury. It covers the cost to repair or replace property damage that you caused. [youmaylike] You are also covered if you cause the bodily harm or death to someone else while you are driving the car. This includes medical expenses, loss of income and specified legal defense costs. Collision Insurance If you are involved in a collision, this type of insurance will help pay for repairing or replacing your vehicle. If the collision is your fault, the coverage may extend to other damaged vehicles involved in the accident. States do not mandate that you buy collision insurance, but your lender or car dealer will if you finance or lease the car. Policies offer a range of deductibles, which is how much you’ll have to pay for repairs before the insurance kicks in. Larger deductibles lower the policy premiums but expose you to more out-of-pocket expenses if a collision occurs. Comprehensive Insurance Comprehensive insurance covers damage to your car that occurs for reasons other than a collision, including theft, fire, vandalism, weather and natural disasters. This coverage is often required if you finance your automobile. You can add riders to this insurance to provide coverage of additional costs, including auto towing, glass repair, daily rental while your car is in the shop and emergency roadside service. As with collision insurance, you can set the deductible on your comprehensive insurance policy to cut your premium costs. Gap Insurance If your car is severely damaged in an accident or other incident, you might find that your comprehensive and collision damage won’t provide enough coverage to pay off the amount you owe on the vehicle. Many policies pay only the fair market value of a totaled car, which might be only 80% of the amount you owe. You can buy additional insurance to plug this gap and ensure you can pay off the car loan in full if the vehicle is destroyed or stolen. Normally, car leases require you to buy gap insurance. If you pay cash or pay off your loan, you can save money by avoiding or dropping gap insurance when no longer needed. Top Five Auto Insurers These five insurers all offer full coverage policies and many additional services. Amica Amica is a superstar among car insurers, winning accolades from Consumer Reports and J.D. Powers. It’s known for handling the claims process smoothly. The average annual cost for full coverage: is $1,360. Pros You can have your car repaired at any body shop, without restrictions. Offers a premium package which, for an additional cost, provides full glass coverage, rental coverage, good driving rewards and identity fraud monitoring. Superior financial stability rating from A.M. Best. Cons Missing some discounts, such as military, low-mileage and prepay discounts. Must speak on the phone to get a quote. Sparse website when it comes to customer education. State Farm State Farm is the country’s largest multi-line insurance company. It excels in customer service and regularly garners high marks from customers. The average annual cost for full coverage: is $1,337. Pros Superior financial stability rating from A.M. Best. Excellent online quote tool, getting customers a quote in as little as five minutes. Easy claim handling and top service from its more than 18,000 agents and its easy-to-use mobile app. Cons Doesn’t offer coverage for new car replacements or uninsured motorists. Missing prepayment and automatic payment discounts. The Hartford While only 11th in size, The Hartford is big when it comes to policy options. It offers rates based on your actual driving as well as full replacement of new cars when destroyed shortly after purchase. Average annual cost for full coverage: N/A. Pros Solid benefits, including superior roadside assistance and towing programs. High marks from customers for their purchase experiences. One of the few insurers with mechanical breakdown coverage for out-of-warranty repairs. Cons Mediocre service interaction according to J.D. Power surveys. Sparse online learning materials. Geico Geico is the second-largest U.S. car insurer. It is a favorite among tech-savvy geeks who appreciate the insurer’s mobile app and excellent online service. The average annual cost for full coverage: is $1,627. Pros Geico offers plenty of ways to save, such as multi-vehicle, driving history and vehicle safety equipment discounts. Special savings for active and retired military members and federal employees. Full-featured mobile app for getting quotes, buying insurance, managing your policy, submitting claims, summoning roadside assistance and making payments. Cons Human help may be in short supply, as just about everything is handled online. No gap insurance is offered. USAA No insurer matches USAA for service to military members. Unfortunately, it's only available to active service members, their families and retired veterans. Average annual cost for full coverage: $896. Pros Superior financial stability rating from A.M. Best. Top-ranked purchase experience score from J.D. Power. Cons Missing gap coverage. Doesn’t offer interior vehicle coverage or new car replacement coverage. Limited availability. The Right One for You Competition in the insurance industry helps drive down prices and prompts insurers to offer money-saving features. For example, your carrier might reward you for a safe driving record and for having a long-term relationship with the insurer. The right insurer for you is highly rated for service, offers the exact coverage you want and does so at an unbeatable price. You should always gather multiple quotes before selecting an insurer, and make sure you get credit for all applicable discounts.
Making a Profit Is the Next Step After You Break Even
The whole point of being in business is to make a profit. But sometimes, especially when you’re first starting out, that isn’t always possible. The secret to staying in business is to first stem your losses. Ideally, you’ll want to turn that loss into a profit, but first you’ll have to break even.
This isn’t as simple as you’d think. In this article, we’ll go over the break even point formula so you can figure out how to turn a profit with your business.
How to Calculate a Break Even Point
The break even point occurs when a business makes enough revenue to cover their costs. Note that a profit hasn’t been made at this point, but it’s usually the next step.
How do you figure out this number for your business?
First, you must add up all your fixed expenses. Typical fixed expenses might include:
- Rent
- Utilities
- Staff wages
- Equipment costs
- Loan payments
- Insurance
- Depreciation
- Manager salaries
- Advertising
Next, it’s time to look at variable expenses. These tend to fluctuate with the number of units sold. Note that most of the time production costs per unit will decrease as more product is produced.
Typical variable expenses will be:
- Cost of raw materials
- Labor to put the product together
- Travel
- Marketing and promotion
You’ll notice that advertising is in the fixed cost category, while marketing and promotions are variable costs. All three can be variable costs. Advertising is usually easy to cut when times are bad. However, a business should never abandon marketing completely, or else it could start a death spiral of epic proportions.
Entrepreneurs should note that fixed costs will mostly stay the same, whether your business produces one unit or 100. This is why it’s important to keep those expenses as low as possible when you’re first starting out.
Say I want to make coffee tables. My fixed costs are $5,000 per month for the shop, my staff, and so on. If I only make one coffee table, that piece of furniture will need to sell for $5,000 plus the cost to produce the item in order for me to break even. If it costs $500 to make one unit, I have to sell it for $5,500 to break even.
That’s obviously not a viable business plan.
But what if I make 50 coffee tables per month? This brings down my break-even point to $600 per unit: $100 per table in fixed costs and $500 per piece in variable costs. If I can sell each one for more than $600, I’ve done even better; I’ve made a profit.
There’s just one problem. Figuring out my costs is relatively easy. All I need to do is come up with a business budget and stick to it. But how does a business owner accurately forecast revenue? This is the tricky part of a break even formula.
Forecasting Sales Will Help You Stay Afloat
The bane of every good break even point formula is when sales start to falter. This increases your fixed costs per unit and can throw your whole business into chaos.
Figuring out your top line is notoriously tough, especially for new entrepreneurs. How can one forecast sales when there’s no data to back anything up? It’s basically a wild guess.
The first tip I’d give new business owners is to be conservative. Build your business to be able to withstand lower than expected revenue, especially in the first few months of operations. Take your first three months’ worth of sales expectations and slash them in half, then build your business accordingly.
This is when doing your market research is important. Find out how many sales your competition expects in a typical week. Surpassing your rivals is a reasonable (and motivating) long-term goal, but don’t expect it to happen right away. Happy customers aren’t going to stampede over to your new product even if you give them a compelling reason to switch. It’s a process that takes time.
Another way to get an idea of your potential sales expectations is to research a competitor operating in another city, in a market that has similar characteristics to your home. You’d be surprised how much employees will tell you if you make a visit and start asking questions. After all, you’re not much of a threat.
Some entrepreneurs find value in having two sets of sales projections. One is a conservative measure, while the other takes a more aggressive approach. Since business can go up and down seemingly randomly, switching from one forecast model to the other can keep a business owner sane.
One last piece of advice is to make sure you have enough start-up capital to endure worse than expected conditions. If business takes off, you can always invest that excess cash into expanding operations. And if it doesn’t, your business can survive while you figure out the next step.
Getting Back on Track
What should you do if sales aren’t quite up to expectations?
This sounds counterintuitive, but the first step should often be spending more money. A good marketing campaign at the right time can save a business. Many new ventures panic and cut their advertising spending, which decreases new revenue sources.
One of the most difficult decisions for a struggling entrepreneur to make is whether more capital should be injected into a money-losing business. The time to make this decision isn’t when the owner is panicking. This decision should have been made months beforehand, when calmer heads ruled the day.
Further to this, have additional sources of capital lined up before you need them. It’ll be a lot less stressful this way.
Falling into money-losing mode is also a great time to look at your fixed expenses. Perhaps a staff member isn’t working out, or the company has too much space. These might be big changes, but they could literally be life or death decisions for your organization.
A riskier move is to try raising your prices. Many first-time entrepreneurs are convinced undercutting the competition is their ticket to success. This often backfires, especially when they don’t have a low-cost business model. Besides, customers will often conclude something is wrong with a discount version of the same product.
The Bottom Line
Your business needs to do a break even analysis before it even opens its doors for the first time. Yes, it really is that important. Opening a new venture is hard enough. The last thing you want to do is put more of your hard-earned capital into it.