Why is "Break even" Important to the success of a business?

Question

Please...someone give me something useful....I need real answers NOT something stupid e.g "I dunno.." or "Don't ask me..." + i can't ask the teacher cause this is independant study + my teachers are jar heads!!!

what are the advantages and disavantages of break even?

Answer 1

Break even is important as its the point that a business turns from making a loss to making a profit. The term is usually associated with a start up firm that is looking to reach a point of profitability after an initial period of loses that are supported by investors. It should be noted that break even is not a precise term and could be used to mean that the business is profitable on a day to day basis (an operating basis) even when the business is not actually profitable if the full cost of capital (the investment to reach break even) is taken into account. Certainly a business must reach break even at some point for it to have any long term viability and value.

Answer 2

The "break even" point is the point at which operations move from losing $$ to making $$. The lower the break even point is the higher the liklihood of making a profit.

For instance Airbus calculated their break even point on the sales of A-380's was 250 planes. They believed the probable market for it was from 500 to a thousand planes over the next dozen years or so. Everything above 250 would have been profit. However, their costs of construction have been significantly higher than estimates & there have been a number of delays in getting the craft to market. So the break even point has risen to to some 400+ & is still climbing . What's more, they only have orders for about 180 planes & the market has changed (to favor smaller craft), so the potential size of the 380 market has shrunk. So the liklihood of the 380 being profitable is greatly reduced.

Answer 3

Actually, you may mean the Break Even Point. If so, read on. Businesses have costs that are fixed and costs that are variable. Fixed costs are incurred whether they produce or sell anything or not. Rent is one example. Variable expenses, such as direct labor and material costs to produce a product for sale, are an expense when the product is sold. When all variable expenses are computed on a per unit basis and all fixed expenses are calculated in total (say for a one month period), then it is possible to calculate the number of units that must be sold before a company has earned enough gross profit to cover its fixed monthly expenses. That point is the break even point. The gross profit earned on each sale made above the break even point contributes to profits earned for the period. As explained by others, the gross profit per unit is the amount left over after deducting the cost of the product sold from the sales price.

I hope this helps.

Answer 4

You could argue that it takes a certain amount of talent just to make it to the point where your career could springboard into something successful. In that regard, Britney Spears is talented. But does she have the talent for longevity? Doubtful. The music industry, especially mainstream, is a business. And just like any other business, it's ultimate goal is to make money. I doubt record execs *really* care about talent. The immediate dollar is probably more important. So if they can have a band put out an album that only has one decent song on it with the rest showing the bands true colors (read:talentless), it will be put out.

Answer 5

When you start a business, that requires a significant outlay of capital to get started. This is generally accomplished by incurring debt and the amount of time it takes for your business to reach "breakeven" reflects the amount of debt you'll need to take on. If that debt exceeds your available cash investment/loans, you'll go bankrupt.

Furthermore, breakeven generally includes not only payment of the loans to sustain the business indefinitely, but also payment of salaries...including YOURS! Yes, a wise business owner should be paying themselves. Once you've achieved this level, you have stability and a degree of success. After all, you are being paid for your work and you are your "own boss", hopefully doing something you want to do. This isn't bad, is it?

You should also take stock in terms of who loaned the money. A bank is repaid simply in the form of interest. A private investor generally seeks company ownership, in which case they will look for a return in the form of the company creating profits beyond the breakeven point.

Answer 6

It's very simple. Breaking even is very crucial for every business because it's an indication of viability of a business. At break even point normally a business has been able to cover its costs (particularly overhead cost) so a business could be on its way to making real profit after breaking even. It's the period when the revenue of a business has significantly risen to match cost.
I don't think it has any disadvantages rather i think it's important for every business to break even on its way to making normal, abnormal and supernormal profits.

Answer 7

Break even in business terms means that income equals outgoings. The business, after paying all of its bills, salaries and other expenses, has no profit but can still operate as a business by continuing to break even. The purpose of any business however is to make profit. A business has no other purpose.

Answer 8

Break even is the point in which the company turns a profit from an investment. The investment could simply be the salary and overhead of its employees and building.

You must "break even" before you make money, otherwise you are loosing money and the business fails.

Answer 9

Keep it simple - Break even point is when the costs from start up are offset by the revenues generated by the business.

It is the point that the business starts generating a profit.

Answer 10

To answer your question plainly, to break even means that the gross income of the business is equal to all of your outgoing expenses thus leaving no remaining profit.

Depending on your reasons for running a company you may be quite happy with a business which only breaks even, if you only run it for your own pleasure, maybe. But if you are in business in order to make a profit and/or as a means of income then it wont do you any good unless you are, of course, making more than is required to break even, which is then taken as profit.

(I've used the same few words way too many times for my liking in that little paragraph but its the only way I could explain it quickly!) & (Hope my slight amendments help it to make a bit more sense)