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Break Even Analysis

Given changing business scenarios and market conditions, it’s important to know your businesses’ break-even point to help you decide pricing strategies, set budgets and readjust your business plan.

This will help you make sure that the business moves forward with a clear understanding of incomings and outgoings.

Use Break Even Analysis to find the point where your investment starts to pay off.

In business, your ultimate objective is to make money.

So, when you launch a new product or purchase a new piece of equipment, how do you know whether a potential investment will at least cover the costs associated with it?

You could simply make a wish and hope it all works out – or you can evaluate the project more formally to see if it makes financial sense. One way of doing this is to complete a Break-Even Analysis.

This determines the break-even point – the level of output at which the revenues generated by a project equal costs.

At the break-even point, you don't make or lose money. Once you pass break-even, you make money; below break-even, you lose it.

Using a Break-Even Analysis, you can answer questions like:

  • What are the projected profits and losses at any given output level?
  • At what minimum sales level do you avoid making a loss?
  • Do your sales projections for a new product exceed break-even?
  • If you drop a product, will your break-even improve?
  • How will raising or lowering prices affect your profitability?
  • If costs increase, what is the effect on your break-even position?
  • How does investing in facility improvements affect your break-even position.

Knowing your break even per annum, per month, per week, per week and even per day is essential for business success.

 

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