Breakeven analysis is an important and useful tool in business. Whether starting a new business, expanding current operations, contemplating an acquisition, downsizing, or approaching banks and other potential lenders, one should know what the breakeven is.
Breakeven is simply the point at which costs equal income – no profit, no loss. It’s an excellent starting point for finding out where the business is and where it can go. It’s the first step in planning future growth. It shows how much sales volume is needed to cover fixed and variable expenses. Once a company has reached breakeven, all gross profit beyond that point goes directly to improving the bottom line.
There are certain limitations for the use of breakeven analysis. It makes the assumption that fixed and variable expenses will stay within the parameters used to calculate the breakeven. Sound business assessment will overcome these shortcomings.
Call us; we would be happy to assist you with calculating your business’s breakeven point and evaluating your profit structure.
Tags: breakeven point
Written by: Doug Rodrigues