Starting your own business can be a very daunting task. An aspiring entrepreneur has to deal with a wide variety of business organization issues. One of the tasks is the timely implementation of the financial goals of the business project. The most important indicator of the financial position of a new enterprise is considered to be the break-even point.
In the business world, you can often hear the conventional wisdom: either you are reaching a break-even point, or you are putting an end to your business. Achieving the break-even point is the main financial goal that an entrepreneur should strive for when launching a business project. In simple terms, this is a situation where the income from the business becomes equal to the amount of costs. It should be remembered that the structure of production costs is heterogeneous and consists of constant and variable parts. Variable costs are almost entirely determined by the activities of the company. In other words, as sales increase, variable costs increase. This circumstance allows a businessman to regulate this type of costs to some extent. Variable costs depend to a large extent on how much material resources and money is spent on a unit of output. It is customary to include here the costs of materials and raw materials, technologies, energy, logistics, as well as the cost of goods. But fixed costs often turn into a heavy load for an enterprise. This category of expenses usually includes the rent of office and production space, wages of employees, regular payments for the financial obligations of the enterprise. The primary task of the entrepreneur is to correctly calculate both types of costs - variable and fixed. After that, it becomes possible to calculate the break-even point, after which the real profit begins. To do this, a businessman must answer two questions: what should be the level of income in order to cover all expenses for a certain period, and also how many products will need to be sold for this. Upon reaching the break-even point, the company will not yet have a profit, but at the same time it will not incur losses. From that moment on, it becomes possible with the release of each new unit of production to go into profit. When determining the break-even point, you can express it both in units of production and in net monetary equivalent. In the latter case, the desired point will be equal to the minimum income at which production costs are fully paid off, and there is no profit. Expressed in units of production, the break-even point is the minimum of goods produced in a given period. The break-even point becomes a reliable criterion for assessing the effectiveness of a new venture. If it turns out that the company is not able to reach the specified point within the planned timeframe, it is considered that the company is ineffective from a market point of view. However, for a complete and objective assessment, you will need to do a comprehensive analysis of the financial performance of the enterprise.
