Where is that breakeven point?
What are the most common failures of businesses to properly prepare or consider when to achieve their prior calculated breakeven points?
Break even analysis enables a business to establish its cost structure and to make plans accordingly. Breakeven point of the business occurs when the total revenue of the business is similar to that of the sum of production costs. At the breakeven point all costs are recovered beyond which the business realizes profit. Fixed costs remain the same regardless while variable costs are influenced by external factors to the business. The revenue is obtained from the sale of goods and may be used as a basis for budgeting. The organization is in a position to tell how many units it needs to sell to break even. However, sales are likely to go down during economic let downs making it difficult for a company to break even ( Oe, & Mitsuhashi, 2013) . The company may also fail to break even when it does not consider the variations in supply or demand. Break even analysis enables the organization to make wise pricing decisions and plan for the supply of goods.
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Explain why.
A business may go bankrupt even when making profitable sales given that it lacks sufficient capital to meet the market needs. Other than lack of market for he processed goods, the organization may lack the capital to acquire goods to supply to the already available market. One reason for failing to breakeven is working with the wrong people who may only add onto the business expenditure. The manager should assess the viability of spending on casual laborers compared to permanent workers and go for a cost effective approach. At the same time, some workers tend to have vested interest and may manipulate the accounting figures .Moreover a, depreciation of fixed assets may also cost the company to spend more than expected on variable costs ( Oe, & Mitsuhashi, 2013) . Last but not least, the business director should well know when to invest and how much to invest for the business to break even. A workable business plan would also enable the business to avoid unnecessary expenditure.
References
Oe, A., & Mitsuhashi, H. (2013). Founders' experiences for startups' fast break-even. Journal of Business Research , 66 (11), 2193-2201.
