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If that's the case, take heart in the fact that you found out before you invested your (or someone else's) money in the idea.Further Financial Analysis If your break-even forecast shows you'll make more revenue than you need to break even, you can consider yourself fortunate.The cost of selling those products could easily reach ,000 at wholesale cost, which only leaves ,000 in gross profits.
Many experienced entrepreneurs use a break-even analysis as a primary screening tool for new business ventures.
They won't write a complete business plan unless their break-even forecast shows that their projected sales revenue far exceeds their costs of doing business.
Performing the analysis requires three basic pieces of information that are discussed below.
Analysis on Fixed Costs Generally, the fixed costs in your small business are operational expenses such as payroll and building lease payments that do not change from month to month.
Posted on June 11, 2014 in Business Tips A break-even analysis determines when a small business is expected to cover all expenses while simultaneously making a profit.
Identifying startup costs can help small business owners determine the sales volume needed to business expenses on an ongoing basis.Unless you have an accounting background, this might sound complicated to the average business owner.In simple terms, however, conducting a break-even analysis tells you how many units you need to sell to cover all costs.If number show that the idea is not worth pursuing, the entrepreneur can make modifications or look into another business.For example, your business could have ,000 in product sales, but this would not be enough to cover the ,000 monthly expenses.What a Break-Even Analysis Tells You A break-even analysis shows you the amount of revenue you'll need to bring in to cover your expenses, before you make even a dime of profit.If you can attain and surpass your break-even point--that is, if you can easily bring in more than the amount of sales revenue you'll need to meet your expenses--then your business stands a good chance of making money.For instance, perhaps you can: --find a less expensive source of supplies, --do without an employee, --save rent by working out of your home or --sell your product or service at a higher price.If you tinker with the numbers and your break-even sales revenue still seems like an unattainable number, you may need to scrap your business idea.The following are additional financial projections that should also be part of your business plan, to round out your business's financial picture. This is a month-by-month projection of your business's net profit from operations. This shows you how much actual cash you'll have, month by month, to meet your expenses. This is the total of all the expenses you'll incur before your business opens." How can you tell if your business idea will be profitable? But this uncertainty shouldn't keep you from researching the financial soundness of your idea.