Break Even Analysis is a corporate tool commonly used for all types of industries and businesses to evaluate their selling and profit generating performance.This is a very essential aspect usually included when preparing an effective business plan, since the main benefit using Break Even Analysis is it helps in determining cost structures, particularly identifying how many units needed to be sold in order to make a profit or cover the expenses incurred.
Therefore, this analysis is usually done by business owners to see how effective the business is, whether it is profitable enough or just a waste of money. Even for existing businesses, Break-Even Analysis can be much helpful in pricing products and cost control.
The Break Even Point can be determined using the following basic formula:
Basic Formula: Break-even Point = Fixed Costs/ (Unit Selling Price – Variable Costs)
Simply put, we need to calculate at what sales figures needed to match the total expenses incurred in the production of the products or services.
Here are some important points why use Break Even Analysis Excel Template:
- Business startups can determine how long it will take before the business becomes profitable.
- Investors and Money Lending Institution will understand the viability of a business and help them decide whether to put their money on it or not.
- Since Break Even Analysis enables the company to determine the least number of products to be sold in order to make profits, therefore they can create a Margin of Safety Report that allows the creation for higher business decision making.
- This analysis is also much helpful to determine the appropriate values for the selling price and variable costs. Once the company knows how much would be needed to gain profits, it’s now easier to deal and allocate the correct amount of costs.
- Another factor is that the company has it easy to establish and plan financial goals, as well as to set a budget for the entire company. In other words, this practices the establishment of realistic values for the company by already knowing if they will gain profit or not.
- We know that the profit margin is affected by both fixed and variable costs. That is why this analysis helps management predict any impacts or sudden changes in the costs.
Overall, using a break even analysis excel template lets you understand the sales, expenditures, and cash flow of your company which are very crucial in keeping your doors open for growth and profit.While you still have plenty of time ahead of your eCommerce journey, you should start to learn how and why use a break even analysis excel template.
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