The break-even point is particularly important for businesses. Indeed, it makes it possible to determine the turnover to be achieved during a given period to reach the balance.
The break-even point represents the level of turnover that a company must reach during the accounting period to obtain a zero result. Below the break-even point, the company is said to be loss-making. Above this threshold, it is profitable. Why and how to calculate the break-even point? Explanations.
The break-even point is a number that indicates the volume of activity from which a company becomes profitable. This figure is expressed in value unlike the breakeven point which is expressed in number of days.
To define the break-even point, it is necessary to distinguish fixed costs variable loads . Fixed charges do not depend on the activity of the company. These include, for example, commercial rent, insurance or salaries. Variable expenses depend on the level of turnover obtained. The purchases of raw materials, subcontracting or energy consumption in industrial companies are considered as variable costs.
There are two formulas for determining the break-even point of a business. It is possible to get this figure from the income statement:
Break-even =fixed costs / [(turnover – variable expenses) / turnover]
The break-even point can also be calculated from the table of intermediate management balances or from an accounting balance:
Break-even point =fixed costs / margin rate on variable cost
A zero break-even point means that the activities of the company are not sufficient to pay the expenses. If this indicator is greater than 0, it means that the company is profitable. If it is less than 0, the company is loss-making.
Thus, the break-even point allows a company to develop the appropriate action plans to become profitable. This figure can be modified when a change affects the operation of the company. The leader must take this into account to make the right decisions. Finally, this indicator is decisive in the context of the creation or takeover of a business.
The breakeven point is a data obtained from the break-even point. It expresses the duration of activity necessary for the company to achieve a zero result. In other words, the breakeven point makes it possible to determine the date from which the company reaches its break-even point. The breakeven point is calculated as follows:
Break-even point =(break-even point / turnover) X 365
To calculate the breakeven point, it is necessary to know the amount of fixed charges and unit variable charges, the unit selling price.
The break-even point and the break-even point must be monitored regularly by the business manager because they make it possible to detect any slippage in costs.
