break even means covering costs

• Break-Even Analysis

  A great way of working out how much you need to sell to make a profit
• Break-even point (or break-even output)

  • The level of sales a business needs to cover its total costs
  • At the break-even point, total fixed costs + total variable costs = total revenue
• When sales are below the break-even point


  Costs are more than revenue- the business makes a loss
• When sales are above the break-even point


  Revenue exceeds costs- the business makes a profit
• New businesses

  • Should always do a break-even analysis to find the break-even point
  • It tells them how much they will need to sell to break even
• Anyone thinking of loaning money to the business

  • May want to see a break-even analysis as part of the business plan
  • This helps them to decide whether to lend money to the business
• Established businesses preparing to launch new products

  • Use break-even analysis to work out how much profit they are likely to make
  • Use break-even analysis to predict the impact of the new activity on cash flow