What is Break-Even Analysis – A quick guide

A company that fails to make enough sales to meet the break-even point can accumulate considerable debt over time, which can eventually cause a company to go out of business.

The current economic situation is making it more important than ever to ensure that you are performing a thorough Break Even Analysis of your business. This will help you to maintain profitability and keep your business afloat during these difficult times. 

But what is Break-Even Analysis?

Break Even Analysis refers to the point in which total cost and total revenue are equal. A break-even point analysis is used to determine the level of sales needed to cover the outgoings of your business, to avoid losing money during these turbulent times.

Generating enough sales to reach a high breakeven point can be difficult to achieve in the current climate. To overcome this, you may want to consider:

• Can you reduce any of your costs such as overhead expenses and owners’ drawings? 
• Is it possible to increase the price of any of your products / services without causing a drop in sales?
• Can you diversify your service / product offering to appeal to current consumer demands (without significantly increasing costs)?

Upon completion of your Break-Even Analysis, you will be able to work out the number ‘Survival Days’ for your business. This is essentially the number of days that the business can trade before it runs out of cash. 

To help you calculate your business Break-Even Point and Survival Days, we’ve produced a simple guide for you.

Download yours here

Watch our short video on break-even analysis

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