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A Break-Even analysis is a key financial planning tool that helps businesses determine when they will start making a profit on their products or services. The analysis calculates the point at which sales revenue equals total expenses, including both fixed and variable costs. It can be used to help businesses determine pricing strategies, production levels, and other important business decisions. This calculation is important for businesses because it helps them determine whether they are making a profit and, if not, how long they will continue to lose money.
How to prepare the Break-Even Analysis Template?
LiveFlow has the break-even analysis template that can be used to calculate the break-even analysis, just make a copy of the template and change the underlying company to Profit & Loss by Month report within the “Manage reports” tab. Once done, your break-even analysis template will be updated in google sheets.
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What is the Break-Even Analysis Formula?
The break-even analysis formula calculates how much revenue is needed to cover all expenses and achieve zero profit. The equation takes into account the fixed and variable costs of a business. Fixed costs are those that do not change regardless of how much product or service is sold, such as rent or employee salaries. Variable costs change with output, such as the cost of raw materials or shipping. To use the equation, divide the total fixed costs by the contribution margin per unit. This number is the amount of revenue that must be generated for every unit sold to cover all expenses and achieve zero profit.
The break-even analysis formula calculates the number of units that must be sold to achieve a given level of profit. The formula is:
Breakeven Point = Fixed Costs / (Price - Variable Costs)
What are the uses of Break-Even Point Analysis?
There are many different uses for Break-Even Point Analysis. A few of the most common uses include: