Why is it so important to know break even point?
For a developing business, the break-even point is the point at which the business starts paying for itself, and becomes self-sustaining. Therefore from a business planning perspective, when looking into the future, a business must have sufficient cash reserves to stay afloat until the break even revenue point is exceeded. “Total Costs” – at a point in time Business expenses can be categorised as fixed, variable or semi-variable. Therefore the calculation of “Total Costs” in a business will not be precise, because expenses will vary and even change their nature according to a range of influences on the business’ activity level – influences such as seasonal demand factors, and a variety of real-world factors which fluctuate over time. Exercise Caution Because a break even calculation is an arithmetic calculation taken at a single point in time, caution should be exercised in relying too heavily on a single calculation when taking big decisions. Nevertheless, despite the limitations, a b
