In business, you perform a break-even analysis for a specific purpose. You can use it to determine if your revenue will be able to cover all your expenses within a specific time period. Generally, businesses use a month as the time period in this analysis process.
If the revenue is more than the break-even point, then your company stands to gain profits. But if it doesn’t reach the point, your business may suffer losses. When performing such an analysis, you may need to create a break-even analysis in Excel.
You can create the template yourself or download one from here. Some companies need to plan carefully in order to avoid any losses. You have to make accurate calculations.
To do this, you enter the data in a break-even spreadsheet and use that for your analysis. In different types of businesses, there are different things to consider. That is if you want to gain profit rather than suffer losses.
Some startup businesses use such an analysis to calculate financial viability. Through it, they can determine whether it’s feasible to pursue a new venture or release a new product. This process is a tool that’s usually part of a strong business plan.
Calculating the break-even point is fairly simple. What’s challenging is coming up with the other variables. These include the sale price, projected sales, fixed, and variable costs. The business owner still needs to come up with all these in order to complete the template.
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You may have a plan to make a break-even analysis template. Before that, you need to know the different terminologies to use. These basic terminologies are important if you want to make accurate calculations. You need to understand what they mean and why they are part of the analysis.
These are the most basic terminologies. You need to understand them if you’re planning to make a break-even analysis. When you perform this, you need a break-even spreadsheet. In it, you’ll input all the relevant information.
You can download a template here or create one on your own. To help you out, we’ll discuss some helpful steps next.
It’s important for businesses to perform a break-even analysis. You need to know the appropriate price you should charge for your goods or services. This information can make or break your business.
Part of making the decision would depend on the analysis process. The break-even point or BEP is the point where your costs will be equal to your sales (revenue). When you reach this point, it means your product is making a profit but you’re still covering your costs.
So if the value goes beyond the BEP, it means you’re making a profit. But if the value falls below the BEP, you’re suffering a loss. Before you make your analysis, you need to come up with some variables. There are:
When you’re trying to establish your BEP, remember that it isn’t a standard value. It’s more of an estimate which will provide insight into how profits and losses will change. These changes happen as your sales rise and fall.
If you want to perform your analysis well, you need a break-even analysis template. You’ll input all your information on it in order to come up with accurate calculations. You can easily create a break-even analysis in Excel.
Here are some general steps and tips to guide you:
The values and formulas that you input in your sheet are very important. You need to make sure they’re all correct. Do this so you’ll be able to get an accurate result for your analysis.
Aside from tables, you can also use a grid to analyze the information. Plot the values in the grid and interpret it accordingly. You’ll be able to see if your BEP is high or low. Then, you can determine whether you need to increase or decrease the prices of your products.
If you increase your prices, it will reduce your BEP. But if you decrease your prices, it will raise your BEP. Analyzing the data in a graph will also provide you with insight for you to make good decisions.
When you’re done with all the templates, make sure to save your work. You can save a blank template which contains all the formulas already. Then you can use that template to record all your data. Once you’re done, save the file with a different file name.
If you want to generate a new BEP, modify any of the values you’ve entered. If you want to keep the modification, save the file with a different file name again. Otherwise, just exit the program without saving the changes.
A break-even spreadsheet can help you out with your business. You can use it to establish the scenarios your company must do in order to become profitable. One of the most important uses of such an analysis is to be able to see different scenarios.
For example, if you want to hire another person for the business. How much would more sales you need to cover the employee’s salary? You may also plan to borrow money to increase your principal.
How much more money will you need to make to cover the monthly amortization payments? A lot of business owners perform break-even analyses when they’re planning something new.
It will give you an idea of what you need to reach to keep your business going.
If you’ve made a template for your analysis, then you should know how to complete it correctly. Here are some tips for you:
These are helpful tips and reminders for you to follow when filling up your template. When you’re entering the labels of your template, make sure they reflect your own business.
A break-even analysis is a tool which helps you see the “big picture.” So knowing how to fill up the report is very helpful.
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