It is the aim for any business to gain profit. For starting businesses however, this may seem like a far-off dream and they should thus focus on a shorter-term goal—to break even. To determine the breakeven point of your business, you will need to do a breakeven analysis. This process involves quite a number of steps, including doing a SWOT Analysis.
A breakeven analysis gives you an idea of how your business will fare in the long run given the costs of your operations and the price of your products or services. It works just like a critical analysis but on a business setting.
Breakeven Analysis Data
Sample Break-Even Analysis
Hotel Breakeven Analysis
Why a Breakeven Analysis Is Important for an Entrepreneur
For businesses, it takes quite a while before they get to enjoy the fruit of their hard work. In the initial stages, the business experiences loss and it takes quite a while before the business reaches a point where the entrepreneur experiences neither loss nor profit—the breakeven point. Doing a breakeven analysis is part of the financial analysis every business should do. Here are some benefits to doing a breakeven analysis.
- It tells you when your business will stop incurring losses.
- It helps in making important business decisions.
- It enables you to create different scenarios so you can break even much earlier.
Why Is a Breakeven Analysis Crucial for a Feasibility Study?
A feasibility study is an assessment of the viability of a business venture. It is commonly done before doing the project and evaluated on different aspects—technical, legal, financial, operational, etc. In doing a feasibility study, it is also important to determine when the business will break even. As a feasibility study is a measure of whether the business will succeed or not, it follows that you would need to determine when it will break even and eventually earn profit. You can also check out these analysis samples and business SWOT analysis as they are also vital steps in the feasibility study process.
Breakeven Analysis Template
Break-Even Analysis Calculator
Break-Even Analysis Example
What Is a Breakeven Analysis?
A breakeven analysis is an evaluation of a business and when it would reach its breakeven point—a point when the business stops incurring losses. However, at this point, while there are no losses experienced, the business also does not gain any profit. The process of determining this point is through a breakeven analysis. As in a case analysis, there are several assumptions in this analysis.
- Costs are either fixed or variable. It rules out semi-variable cost.
- Unit selling price stays constant.
- Cost and production has a linear relationship.
- Fixed cost, business activity, etc., stays the same.
What Is the Breakeven Point for a Business?
It is a fact that business often incurs loss during the first few years of operations. The breakeven point is when this stops happening. There is no loss in the business but at the same time there is also no profit earned. When the business reaches this point, it is their goal to now gain profit. When making a breakeven analysis, these analysis template and sales analysis will be very helpful.
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