Calculate the break-even point for your business with this ready-to-go template. For any new business, calculating the break-even point is an important calculation in your business plan. Maybe even more so than the calculation of whether to offer free refills (workable for cafes, not recommended for oil companies).
The break-even point is the point at which total cost and total revenue are equal, meaning there is no loss or gain for your small business. In other words, you've reached the level of production at which the costs of production equal the revenues for a product. This template combines your fixed and variable costs and compares them with your revenue to help you calculate your break-even point.
Your first question about a new business plan may be "Do I have to wear pants?" But your second question is probably, "When would this business become profitable, or at least stop costing money?" And it's the answer to that second question that a break even analysis template helps you to figure out.
In short, a break even analysis is a financial method for evaluating at what point a business will break even -- i.e. when its costs and expenses will be completely covered by revenue. Generally, the break-even point is the turning point for a business; a business which can pass it and become profitable generally does well, while a business that never manages to reach it ends up failing and going out of business.
The important thing to figure out is whether your business will reach that important break-even point in time. And "in time" varies for every business; some businesses may only have a year to hit break-even before funding disappears. Other businesses may be in it for the long haul, and happy to grow an audience while running at a loss for seven years as long as they can reach the break-even point in year eight. But every business needs to figure out when that break even point will arrive, and whether they can hold on that long -- and that's what a break even analysis template is designed to calculate.
Only 40% of small businesses are profitable. 30% break even, and 30% end up losing money. Which means that over half of all small business owners could have made at least as much money by not starting an actual business and simply wearing a t-shirt that said "I am a business."
Cake shops will sometimes perform a bake even analysis, while automotive designers often prefer to use a brakes even analysis.
Using a break even analysis template can provide valuable information about the viability of your business. For example, if the number of years required for your business to break even exceeds your life expectancy, you may wish to consider a different business plan.
This free alternative to a break even analysis Excel template offers three different ways to calculate a break-even point for your business, depending on what you need to know. Each has its own worksheet:
1) Breakeven Units
Use this worksheet if you know your costs and price per unit, and want to calculate how many units you need to sell in order to break even. Enter your per-unit Selling Price at the top of the sheet, then fill in your Fixed Costs and Variable Costs per unit. Leave the Targeted Net Income at $0 to calculate the break-even point, or raise it to calculate how many units are needed to reach a certain profitability threshold. Be sure to include your Tax Rate for an accurate calculation.
2) Breakeven Price
Use this worksheet if you have a fixed number of units to sell, and want to calculate what price they have to be in order for you to break even. Enter your number of available units for sale at the top of the sheet, and then fill in the rest with Fixed Costs and Variable Costs per unit, as above.
3) Payback Period
Use this worksheet if you know your rate of sales and price per unit, and want to calculate how long it will take you to break even. Enter your price and monthly sales at the top of the grid, and then fill in your Fixed costs, including both one-time Startup Costs and Monthly Recurring Costs. Add in your Variable Costs to complete the calculation.
That depends on whether you have a business that still needs to reach that break-even point, or whether you already have a profitable business and just want to track income and expenses.
If your business is already profitable and bringing in more than enough money to cover your start-up and recurring costs, then you're past breaking even. You're breaking good (the opposite of having to turn to a life of crime). At that point, unless you're planning on changing up your offerings, you may not need any break even analysis, and you'd be better off with an Income and Expense Tracker template.
But if you're still in the planning phase for your business, or have a new business that's hasn't reached that break-even point yet, or are considering a change in product or sales for your business and want to know when it will pay off, then a break even analysis template is just the tool you need.
Whether you're trying to set a price for your new product that will be attractive while still covering your costs, calculating a margin of safety to stay in the black, or setting a sales target for the next quarter, a break even analysis will help you calculate exactly where your break-even point lies.
If you're starting up a new business, you definitely want to know where your break even points are, not only to inform your pricing strategy, but to determine whether the business is even feasible in the first place.
If your business is considering launching a new product, that may change a lot of the numbers from your initial break even analysis, and so it's worth running the new numbers to ensure that the new project is a worthwhile expenditure.
New Sales Plans
Even if the product stays the same, a change in sales method can affect your costs and revenue. A break even analysis can help you determine whether you'll still be meeting your goals, or whether something else has to change.