What is a breakeven analysis and why should one be included in a business plan?

Breakeven Analysis

The breakeven analysis is an important management tool and control device. The analysis shows the point at which a business has covered its expenses and begins to post a profit. It is based on breaking down costs into 'variable costs' (costs that are directly related to the manufacture or production of a product or those necessary in providing a service) and 'fixed costs' (costs that remain fairly constant and are not affected by a change in output) and comparing those costs to certain levels of sales. You should include a breakeven analysis in your business plan, as it will help you to determine whether or not your business will be profitable and what it will take to generate a profit. Will you need to sell five widgets a day or five thousand? This in turn will help you determine how many employees you may need, what your start-up costs are going to be and so on. To learn how to prepare a breakeven analysis, visit the Business Owner's Toolkit at www.toolkit.cch.com or Nolo at www.nolo.com.

Here are more opinions and answers from other FAQ Farmers:

• Breakeven is not to lose money and not to make money. Or better put the point at which you begin to make money. Any business has expenses that need to be regained in order to "breakeven". If I have to pay $1,200 in rent for my business a month, I have to make at least that much back to pay the bill.

First answer by Crystal. Last edit by Crystal. Contributor trust: 1454 [recommend contributor]. Question popularity: 95 [recommend question]