Break even analysis, defined as the studying the path to the point where a company is neither losing money nor making a profit, is very important to the survival of any start-up business. Perform it for either products or the business as a whole. The break even calculation can be in reference to pro or post-forma, that is before or after the company has been formed.
Break Even Analysis Explanation
The break even analysis serves to provide the company with a very important piece of information:
“How much revenue does the firm need to make in order to break even?”
This break even analysis is quite easy to do. The only critical piece of information that you will need to attain is a breakdown of the your firm’s expenses into Fixed Expenses and Variable Expenses.
Once you have a breakdown of fixed costs and variable costs, input these costs into the template. You will also be able to conduct various “What if” scenario analyses to see how the breakeven revenue will change.
Once you are able to arrive at the break even analysis you can show the Owner(s)/Management this metric and make it part of their sales planning. Another idea might be to incorporate this metric into the Flash Report review meeting. This way your staff can know on a weekly basis if they are on track to at least breaking even. To learn how to price for profit, download our Pricing for Profit Inspection Guide.
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