From the course: The 45-Minute Business Plan

Using a break-even analysis

From the course: The 45-Minute Business Plan

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Using a break-even analysis

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- Breakeven analysis and business ratios. Let's take a second to show the investors that despite any speculation with our numbers, we know for certain, at a minimum, our breakeven threshold, and that we strive to hit that each month. You'll want to show potential investors that our goal is realistic. To do so, you're going to write a statement about how the company will achieve the breakeven points and win. It's also important to list some of the reasons the company may miss a breakeven threshold in any given month. A sample opening could be something like this. Even though the goal is to reach the breakeven level every month as early in the month as possible, it is unrealistic to believe that the breakeven point will be achieved every month. Numerous factors can cause a monthly loss. Closely following the financial statement review plan section found earlier in this business plan normally eliminates sustained monthly loss trends. Sustained loss trends are usually caused by uncontrolled revenue decreases, uncontrolled expense increases, or a combination of both. A few examples of contingent reasons for missing the goal could be initial months of startup operation, periods of seasonally slow revenue generation, consecutive months in which irregular or unusually large expenses occur, months immediately following a strategically planned expansion of staff, or increases in payroll that are not immediately offset by an increase in productions, sales or profit. Once a continuous negative trend has been identified, immediate action to reverse sustained monthly loss trends caused by uncontrolled factors will be taken. Actions that will be considered include initiatives to reduce expenses, increase profit margins, increase sales, enact control and review procedures, or any combination of these initiatives. Now, you'll want to include a small table like this to show what the company's breakeven analysis consists of from a number standpoint.

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