Break Even Analysis In Business Plan
But you still need to figure out how much profit your business will generate and whether you'll have enough cash available to pay your bills when they are due.
In short, a break-even forecast is a great screening tool, but you need a more complete analysis before you start investing real money in your venture.
Posted on June 11, 2014 in Business Tips A break-even analysis determines when a small business is expected to cover all expenses while simultaneously making a profit.
Identifying startup costs can help small business owners determine the sales volume needed to business expenses on an ongoing basis.
The good news is that a break-even analysis is part of every business plan, so if you start by doing a break-even analysis now, you'll have already started work on your business plan.
To perform a break-even analysis, you'll have to make educated guesses about your expenses and revenues.
The cost of selling those products could easily reach ,000 at wholesale cost, which only leaves ,000 in gross profits.
If you can attain and surpass your break-even point--that is, if you can easily bring in more than the amount of sales revenue you'll need to meet your expenses--then your business stands a good chance of making money.Even after the doors have been open for a given period, a break-even analysis remains a helpful financial tool in determining the best pricing structure for new products and/or services.Additionally, as an essential part of a business plan, this type of analysis can also help an entrepreneur before deciding to pursue a business venture.For instance, perhaps you can: --find a less expensive source of supplies, --do without an employee, --save rent by working out of your home or --sell your product or service at a higher price.If you tinker with the numbers and your break-even sales revenue still seems like an unattainable number, you may need to scrap your business idea.If that's the case, take heart in the fact that you found out before you invested your (or someone else's) money in the idea.Further Financial Analysis If your break-even forecast shows you'll make more revenue than you need to break even, you can consider yourself fortunate.Calculating the Break-Even Point After attributing all costs to bringing your product or service to market are deducted, a certain amount of profit remains for each unit sold.This contribution to your profits is divided into fixed costs, which will determine how many units you need to sell to break even.To calculate your average gross profit percentage, divide your average gross profit figure by the average selling price.Calculating Your Break-Even Point Once you've calculated the numbers above, it's easy to figure out your break-even point.