Starting your own business

About us Business Structures Business Plans Business Finance Flexible Business Loans Small Business Marketing Start an Internet Business Home Based Business Company Formation Accounting and Bookkeeping Business Zone Business Dictionary
Latest News : From North Korean gun running to El Chapo's drugs cartel; New Zealand Police have received more than 350 criminal investigation enquiries about NZ companies the notorious Taylors established - Interest.co.nz      Control is how SME owners can thrive - Bdaily      These are the 33 best places to do business around the world, according to the World Bank - Business Insider      Daily News 29 / 11 / 2018 - EU News      Where Should You Set Up Your EU Entity? - Government, Public Sector - European Union - Mondaq News Alerts      

Break-even

 

Break-even is the term to the point where a business is neither making a profit nor loss. Most businesses will want to know their breakeven point in order to be able to quantify the number of sales they will have to make so that they cover all of their costs.

These costs will include both direct (variable costs) and indirect costs (overheads). At the point where income equals these costs, the business is said to have broken even.

Once the break-even point has been achieved, any additional sales made by the business will result in profit provided that the extra sales are transacted at a price which is greater than the variable costs of producing the items.

For example, a business has total costs for the year of £100,000 and after six moths of trading has achieved sales of the same amount. At this stage the break-even point has been achieved.

If one more sale is made for £10 and the additional costs of supplying that item was £4, then not only does that sale result in a contribution of £6, it also lead to a profit of £6.

This is because by reaching the break-even point, all indirect costs have been covered and therefore the only additional costs incurred are the direct costs which go in to producing the extra item.

Where all overheads have been covered by previous income, any additional contribution is also equal to extra profit.

 
Email This Page  Print This Page


 
 
Site Search
Take the 6 question quiz and test your knowledge on matters relating to starting your own business
1. All trading businesses must register of VAT
 
True
False
Sometimes
  
Submit
 
Single Question Survey
Did you know that company formations can be carried out entirely online without any need for paper or written signatures?
 
Yes
No
  
Submit