Break even analysis
What is Break Even Analysis?
Break even Analysis is defined as the point that determines whether the business is making a profit or a loss. To be specific a profit in relation to break even analysis is zero and can be simplified but total costs (expenses) and total sales (revenue) are equivalent to one another.
What is Break-even Analysis like?
Break even analysis is similar to a wether forecast except instead of rain or sun break even analysis uses costs and revenues which helps to depend on the accuracy of forecasts to specify changes within the near to immediate future.
What is the purpose of break even analysis?
The intention of a break even analysis is to establish the output level the businesses total revenue are equivalent to the total costs. If both the product price and the average cost are evenly priced then a break even analysis is straightforward. To check that this is correct it will be more than likely Graphical as the total revenue curve(line) along with total Costs curve(line) should intersect at the appropriate point to break even.
What are the different types of break even analysis?
Among many types of break even analysis there are three common measures
a. Accounting break-even – sales volume where net income = 0
b. Cash break-even – sales volume where operating cash flow = 0
c. Financial break-even – sales volume where net present value = 0
What’s involved with conducting with a break even analysis?
When conducting a break even analysis this method involves determining whether your business will make a profit or a loss and is able to narrow it down further to specify where or what you are making a loss on so you understand what you require to fix the area to ensure a profit will be made.
According to Brian Tracey when conducting a Break-even Analysis it is important to keep in mind that there are specific fixed cost that need to be paid when required with no exceptions of sales being made or not and semi variable costs are costs that will rise or decrease depend on the active level of business and sales.
Where does conducting a break even analysis fit into managing a business?
Break even Analysis simply fits into managing a business bas it distinguishes whether or not a business has made a profit or loss or has broken even. As stated previously this analysis allows the business to determine specific details of where a loss or profit has been made and allows the business owner to rectify the situation to a more favourable outcome.
How does conducting a break even analysis impact on different areas of the business?
By conducting a break even analysis this can impact on multiple areas of the business by carefully studying each individual department to pin down the costs and prices related to running your business.
What terms are used when conducting a break even analysis?
There are a number of terms used when conducting a Break even analysis. These range from breakeven point to fixed and variable costs, selling price, sales revenue, sales turnover, expenditure total costs and margin of safety
Key term breakeven point (the point where the sales revenue is equal to the total costs) is when the business does not incur a profit or a loss.
Where can I find more information about conducting a break even analysis?
When conducting a break even analysis there are hundreds of thousands of articles with information about the conduction of a break even analysis. The hardest part about searching through each article to find out which is reliable and relevant and which is not.
• Entrepreneur.com – conducting a break-even analysis http://www.entrepreneur.com/article/73782
• Inc.com – How to perform a break even analysis http://www.inc.com/guides/2010/12/how-to-perform-a-break-even-analysis.html
• iPlanner.net – break even analysis break even formula explained http://www.iplanner.net/business-financial/online/how-to-articles.aspx?article_id=break-even-analysis
• SBA.GOV – Break even Analysis http://www.sba.gov/content/breakeven-analysis
Who would most benefit from this knowledge?
The person that would benefit most from this knowledge would be either a person with no experience/knowledge on financial terms such as Break-even analysis and existing Accounting/business owners wanting to gain knowledge about some missing knowledge gaps in this area. This would benefit job levels specifically meaning for any businesspeople/owners meaning employers, business partners, investors or partners and so forth that require the knowledge making their business successful in gaining a profit rather than a loss. Jurisdiction for Break even Analysis stem from financial laws from the Australian commonwealth government which has then enforced requirements across all states and levels of government to effectively calculate the breakeven point of a business. Break even analysis influence all cultures, ages and are relevant to all organisation type from small/medium enterprises, corporation’s non-profit organisations to government departments/owned entities to determine the point of making a profit/loss. Break even analysis remain relevant to all business industries.