Critical break-even point formula. Break-even point and how to calculate it? Total expenses and revenue

The profitability threshold, or break-even point, is the volume of products/services sold, upon reaching which the company covers all its expenses, but does not yet have a profit. Using this indicator, you can calculate whether the chosen methods of production growth are suitable for the enterprise and how sustainable the course of development is.

The last parameter allows you to record the moment of financial stability, that is, when the sales volume exceeds the minimum profitability. Next, the term “break-even point” and methods for calculating it will be discussed in detail.

What is the break-even point

The break-even point is the volume of sold products/services at which the resulting profit (not to be confused with income) changes from a negative value to zero.

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Profit is calculated by deducting all expenses from the company's income. There are two types of break-even point:

• in kind;
• in monetary terms.

The break-even point is determined to establish the quantity of products/services with the sale of which income and expenses will become equal. Naturally, this applies to a situation where initially expenses were greater than income. As a result, after exceeding the break-even point, the business becomes profitable. In contrast to this state, the business operates in the negative until the equilibrium ratio has not yet been achieved in the company.

The break-even point shows how stable the company's financial position is. And if this value grows, then this is a sign that the company has difficulties in generating income.

At the same time, the break-even point is not fixed; its data changes in relation to the growth of the enterprise. And its value is influenced by many factors - growth in trade turnover, opening of new branches, changes in pricing, etc.

The break-even point, in turn, affects a number of positions in the company.

1. If this indicator is calculated correctly, it can be seen whether it is reasonable to invest in the project given the current state of finances.
2. This parameter identifies problems in the company that affect changes in its value.
3. When establishing the break-even point and the volume of sales required by the company, it becomes clear how much it is necessary to increase or decrease the quantity of products sold, the scale of production, subject to a revision of their cost. In the opposite situation, it is possible, on the contrary, to identify the impact of changes in production volume on price formation.
4. The break-even point shows to what minimum limit the company's profit can be reduced, but at the same time still maintain positive work, without losses.

A graph that allows you to clearly see the appearance of the break-even point

Expert opinion

Correct 6 mistakes that prevent your company from increasing profits by the end of the year

Oleg Braginsky,

founder of the School of Troubleshooters, director of the Braginsky Bureau

After half the year has passed, interim results are usually summed up and an analysis of the company’s work, its achievements and failures is carried out. We must remember that there are still six months for profits to grow and, at the end of the year, to be profitable. But there are some mistakes or incorrect actions that can prevent this from happening. The main ones can be seen in the checklist (see appendix), and the 6 main mistakes are as follows.

Mistake 1. Annoying monotonous actions.

A company can constantly do the same things - find customers only through the sales funnel, not listen to customers to create a more customer-friendly atmosphere, continue to interact with consumers through different channels instead of creating a unified one. At the same time, all departments are separated, each working on its own - advertising, service, and sales.

For example, in the middle of winter, a buyer came to one of the agricultural holdings on the b2b market to purchase fertilizer. The head of the enterprise, in the process of communicating with a client, who turned out to be the director of a state farm, learned that the latter got to the holding’s website thanks to the Internet. He made the purchase, and after that the marketing specialists of the agricultural holding began to attack him regularly, sending emails and communications over the network and offering tools, fertilizers, or seedlings. The client did not like this, it caused irritation, since unnecessary goods were offered, and fertilizers were offered at the wrong time. Marketers had to take into account the information received from customers, make advertising targeted and retain this customer.

Clients do not like it when the same identical actions are performed against them with enviable regularity. To prevent this from happening to you, over the next six months actively communicate with customers at all stages of cooperation. Otherwise, your customers will go to your competitors.

A good solution would be to use Client Journey Map (CJM). McKinsey claims that B2B firms using CJM experience a 10% increase in profits. CJM helps to look at the process through the eyes of the buyer, to outline and apply the customer experience. To do this, perform the following analysis:

• marketing channels that the client used when he first contacted your company;
• what exactly the person liked about the site;
• what the customer asked you before making a purchase;
• what products, services, what promotions are of interest to the client;
• what did not suit the customer during the purchase, what objections did you encounter.

Client Journey Map translated from English is called a client journey map and is a technology in the field of marketing that allows you to make working with consumers as simple as possible, increase their loyalty to the company, and help them interact with your company.

To obtain the data necessary to implement all of the above, your employees must constantly note all the moments and processes of a client’s contact with the company. To do this, you should install a CRM system, set up a website and all communication technologies:

• record all information about clients that is available;
• write down in the scripts the questions that the sales employee should ask first-time applicants;
• combine data about what steps a customer takes on your website with the actions of salespeople working with customers coming from the sales funnel.

This way, you can see the user's journey from their first visit to making a purchase. It is worth breaking down customers into sectors depending on how similar their behavior is. And for each group, draw up a map, best in the form of a diagram or graph, which will show all the moments of contact between customers and your company and their response actions. In the future, the information obtained can be used for clients with similar behavior.

This method will allow you to combine the efforts of different departments of your company, because with the joint activities of the marketing and sales departments and their use of complete information, the results of work will only improve.

Mistake 2. Insufficient detail in the buyer persona.

Customers in companies are usually divided into existing, former and new. But more detailed differentiation is not carried out, plus this principle will not apply to sellers, but in vain. Consumer behavior differs not only according to the specified criteria, but also depending on the region in which they live, on which manager they communicate with, and at what stage of the purchase they are at. And the same criteria apply to sellers. Taking these nuances into account will help maintain customer loyalty and improve service.

To solve this problem, it is worth starting from the scope of your company’s activities and its mission. When setting a goal to increase sales in certain territories, it is advisable to detail the list of clients according to the following parameters:

• their location;
• what kind of purchases they make in this area;
• Which sellers are they most willing to contact and make purchases with?

This will make it clear what the client looks like in a particular region. And based on this portrait, potential buyers can be offered exactly the products that are most likely to interest them. At the same time, it is worth assigning to the client exactly the manager whom he sympathizes with, because this will help increase sales. In this case, the client will see that you have high-quality service and that he is valued in your company.

If the company’s current goal is to improve the work of sales managers, then the following approach can be used. Specialists should be divided into groups. For example, some of them do a better job with male customers, while others do a better job with female customers. To organize work, incoming calls must be addressed to the administrator, who will distribute them to the most suitable sellers depending on the gender of consumers.

Taking into account exactly this information allows you to retain customers and increase sales. Therefore, it is necessary to analyze data on the behavior of buyers and sellers and choose the right managers to work with a particular customer.

Mistake 3. Not being interested in the opinions of customers.

When creating new types of products/services, a company usually focuses on its own views, and not on the wishes of customers or their needs.

That is, in most cases, no one asks clients for their opinions or listens to the feedback they voice. As a result, the company produces products that are not in demand and are inconvenient for customers. It is imperative to listen to the wishes of large clients. Let there be at least one full meeting with your most important customers.

A solution might be to invite your highest-earning clients to a meeting of sorts at least once a year. If this year you have not yet collected the opinions and feedback of your customers for analysis, then do it as quickly as possible. As an option, you should organize a business weekend at a hotel in the city or with a trip somewhere, have a buffet and discuss your products and services with guests, ask them to evaluate your company’s service, business development, find out their opinion about the products that you are planning release. At such a meeting you will be able to find out the following information:

• what improvements the company needs;
• what changes to make in goods being prepared for release;
• how necessary are the products already on the market, etc.

You can get this information during regular customer surveys, but the fact is that large customers like to feel appreciated and receive attention. Therefore, it is easier to achieve maximum loyalty from them by showing that their opinion as experts is important to you.

Mistake 4: Retaining customers who are no longer valuable.

Often in times of crisis, companies strive to retain any customers, despite the fact that they do not make a profit. Or, on the contrary, they are trying to attract new customers without trying to retain the old ones. However, the flow of customers requires constant attention on your part. It is worth starting to work according to the following scheme - keep profitable clients, and if they leave, then return them, and delete unnecessary ones. Before the end of the year, you need to edit your customer base according to this principle.

The solution is to retain those consumers who regularly buy your products, who have a loyal attitude towards your company and who advocate for your brand. The customer base should be divided into parts, highlighting the amount of the check, the frequency of purchases made, the presence of debt or its absence to your company.

It is worth stopping to retain those customers whose check amount and, therefore, the margin are insignificant, even if they make purchases frequently, or those who contact you very rarely. To do this, you can change the sales conditions to be more profitable for the company. For example, increase the average purchase amount. Or change the minimum order conditions from one product to several. Loyal customers will accept these conditions, and the rest will drop out.

But if you see that customers are leaving in large numbers or that you have lost your best customers, then the situation needs to be analyzed. It’s worth calling buyers from the b2b sector to find out the reasons for their dissatisfaction. If it suddenly turns out that your best clients are now working with a competitor, ask why they left and what you are missing. This question can be asked directly to customers, or you can purchase a competitor’s product for comparison. The b2b sphere allows you to return lost customers using Internet tools - email newsletters, organizing surveys, notifications about discounts and promotions, etc. You just need to focus on attracting customers who can bring profit and not be useless.

Mistake 5. Linking managers to clients.

Managers in the b2b sector usually work with their own client base. At the same time, customers do not like it when the seller changes. And managers act according to an already established scheme, often forgetting to offer new services or products. That is, you pay them for simply serving a regular customer.

To solve this problem, you can analyze the work of sellers over the past six months. And if it is clear that the client is buying the same thing and for the same amount as always, then assign another manager to him. Or you can motivate your employees by tying the receipt of a cash bonus to their performance results. In this case, understanding that his remuneration depends on the amount spent by the buyer and on the quantity of goods sold, the manager will make every effort.

Mistake 6: Content is unattractive to readers.

Today, many companies use social media - blogs, networks, and start their own channel on YouTube. But at the same time, the content posted by marketers is boring and uninteresting - ordinary reports, dry articles, speeches of directors, etc. That is, social networks are used formally, without the goal of attracting customers.

To solve this problem, you need to create interesting and non-standard content in order to get noticed. In this case, you must adhere to three rules.

• Management should not appear on social networks. Subscribers already subconsciously associate a speech or article from the director with boring content. And they need interesting and lively material to forward to their friends. Therefore, the best content would be to post photos, entertaining and educational information.
• Present your company's products or services in a unique way, from an interesting angle. You can show the production process or some unusual approach to using products. It is best to come up with at least ten such ways.
• Hire actors to produce interesting video content. Although it is more expensive, the result is worth it. Actors will be able to talk more convincingly about a company or product than ordinary employees; they will be able to convey to the audience the emotions of owning the products. Plus, such content will not only be educational, but also entertaining; it will be constantly “liked” and “shared,” especially by fans of the actors and their subscribers.

It is known that the production of products implies investment in its production and sale. Every entrepreneur, intending to create good, pursues the goal of making a profit from the sale of goods/services. The break-even chart helps to see in value and physical terms the revenue and volume of production at which the profit is zero, but all costs have already been covered. Accordingly, having crossed the break-even point, each subsequent unit of good sold begins to bring profit to the enterprise.

Data for the graph

To draw up sequential actions and get an answer to the question: “How to build a break-even chart?” it requires an understanding of all the components needed to create a functional dependency.

All the company's costs for selling products are gross costs. Dividing costs into fixed and variable allows you to plan profits and is the basis for determining the critical volume.

Rent of premises, insurance premiums, depreciation of equipment, wages, management - these are the components of fixed costs. They are united by one condition: all listed expenses are paid regardless of production volumes.

The purchase of raw materials, transportation costs, wages of production personnel are elements of variable costs, the size of which is determined by the volume of goods produced.

Revenue is also the initial information for finding the break-even point and is expressed as the product of sales volume and price.

Analytical method

There are several ways to determine the critical volume. The break-even point can also be found using the analytical method, that is, through a formula. In this case, a schedule is not required.

Profit = Revenue – (Fixed expenses + Variable expenses * Volume)

The determination of break-even is carried out under the condition that the profit is zero. Revenue is the product of sales volume and price. This results in a new expression:

0 = Volume*Price – (Fixed costs + Variables * Volume),

After elementary mathematical procedures, the output is the formula:

Volume = Fixed costs / (Price – Variable costs).

After substituting the initial data into the resulting expression, the volume is determined that covers all the costs of the good being sold. You can go from the opposite, setting the profit not to zero, but to the target one, that is, the one that the entrepreneur plans to receive, and find the volume of production.

Graphical method

An economic tool such as a break-even chart is capable of predicting the main performance indicators of an enterprise, taking into account constant market conditions. Basic steps:

1. The dependence of sales volumes on revenue and costs is constructed, where the X axis reflects data on volume in physical terms, and the Y axis shows revenue and costs in monetary terms.
2. A straight line is constructed in the resulting system, parallel to the X axis and corresponding to fixed costs.
3. The coordinates corresponding to variable costs are plotted. The straight line goes up and starts from zero.
4. The straight line of gross costs is plotted. It is parallel to the variables and originates along the ordinate axis from the point from which the construction of fixed costs began.
5. Construction in the system (X, Y) of a straight line characterizing the revenue of the analyzed period. Revenue is calculated on the condition that the price of products does not change during this period and output is produced evenly.

The intersection of direct revenues and gross expenses projected on the X-axis is the desired value - the break-even point. An example graph will be discussed below.

Example: how to build a break-even chart?

An example of constructing a functional relationship between sales volumes and revenues and costs will be produced using the Excel program.

The first thing you need to do is consolidate data on revenue, costs and sales volumes into a single table.

Next, you should call the “Graph with Markers” function through the toolbar using the “Insert” tab. An empty window will appear; right-click on the data range, which includes the cells of the entire table. The X-axis label changes through the selection of data related to the output volume. After that, in the left column of the “Select data source” window, you can delete the output volume, since it coincides with the X-axis. An example is shown in the figure.

If we project the point of intersection of direct revenues and gross costs onto the x-axis, then the volume of approximately 400 units is clearly determined, which characterizes the break-even of the enterprise. That is, having sold over 400 units of products, the company begins to operate in profit, receiving revenue.

Example using formula

The initial task data is taken from a table in Excel. It is known that production is cyclical and amounts to 150 units. The output corresponds to: fixed costs - 20,000 monetary units; variable expenses – 6000 den. units; revenue – 13,500 den. units It is necessary to calculate break-even.

1. Determination of variable costs for the production of one unit: 6000 / 150 = 40 den. units
2. Price of one sold good: 13,500 / 150 = 90 den. units
3. In physical terms, the critical volume is: 20,000 / (90 - 40) = 400 units.
4. In value terms, or revenue for this volume: 400 * 90 = 36,000 den. units

The break-even schedule and formula led to a unified solution to the problem - determining the minimum production volume that covers the cost of production. Answer: 400 units must be produced in order to cover all costs, the revenue will be 36,000.00 den. units

Limitations and conditions of construction

The simplicity of estimating the level of sales at which the costs of selling products are reimbursed is achieved through a number of assumptions made for the availability of the model. It is believed that production and market conditions are ideal (which is far from reality). The following conditions are accepted:

• Linear relationship between output and costs.
• The entire volume produced is equal to the volume sold. There are no stocks of finished products.
• Product prices do not change, and neither do variable costs.
• No capital costs associated with purchasing equipment and starting production.
• A specific time period is adopted during which the amount of fixed costs does not change.

Due to the above conditions, the break-even point, the example of which was considered, is considered a theoretical value in the projection of the classical model. In practice, calculations for multi-item production are much more complicated.

Disadvantages of the model

1. Sales volume is equal to production volume and both quantities change linearly. Not taken into account: buyer behavior, new competitors, seasonality of release, that is, all conditions affecting demand. New technologies, equipment, innovations and others are also not taken into account when calculating production volumes.
2. Finding a break-even position is applicable for markets with stable demand and low levels of competition.
3. Inflation, which may affect the cost of raw materials and rent, is not taken into account when establishing one product price for the period of the break-even analysis.
4. The model is inappropriate for use by small businesses whose product sales are unstable.

Practical use of the break-even point

After enterprise specialists, economists and analysts have made calculations and constructed a break-even chart, external and internal users obtain information to make decisions on the further development of the company and investment.

Main purposes of using the model:

• Calculation of product prices.
• Determining the volume of output that ensures the profitability of the enterprise.
• Determination of the level of solvency and financial reliability. The farther the output is from the break-even point, the higher the margin of financial strength.
• Investors and creditors - assessment of the development efficiency and solvency of the company.

The break-even point is the critical production volume. When the break-even point is reached, the profit and loss of the organization are zero.

The break-even point is an important value in determining the financial position of an enterprise. The excess of production and sales volumes above the break-even point determines the financial stability of the enterprise.

The break-even model is based on a number of initial assumptions:

• the behavior of costs and revenues can be described by a linear function of one variable - output volume;
• variable costs and prices remain unchanged throughout the entire planning period;
• the product structure does not change during the planned period;
• the behavior of fixed and variable costs can be accurately measured;
• At the end of the analyzed period, the enterprise has no inventories of finished products (or they are insignificant), i.e. sales volume corresponds to production volume.

Using the algebraic method, the zero profit point (break-even point formula) is calculated based on the following relationship:

I = S - V - F = (p * Q) - (v * Q) - F = 0

Where, I is the amount of profit;

S - revenue;

V - total variable costs;

F - total fixed costs;

Q - production volume in physical terms;

v - variable costs per unit of production;

p - unit price (sales price).

The break-even point determines what sales volume must be in order for the company to cover all its expenses without making a profit. In turn, how profit grows with changes in revenue (shows operating leverage (operating leverage)).

When determining the break-even point, you need to divide costs into two components:

- Variable costs - increase in proportion to the increase in production (volume of sales of goods);

Fixed costs do not depend on the number of products produced (goods sold) and whether the volume of operations increases or decreases.

The break-even point is of great importance to the lender because he is interested in the viability of the company and its ability to pay interest on the loan and the amount of the principal debt. Thus, the degree to which sales volumes exceed the break-even point determines the margin of stability (margin of safety) of the enterprise.

Let us introduce the following notation:

B - sales revenue.

Рн - sales volume in physical terms.

Zper - variable costs.

Postage - fixed costs.

C - price per piece.

Zsper - average variable costs (per unit of production).

Tbd is the break-even point in monetary terms.

Tbn is the break-even point in physical terms.

Break-even point formula in monetary terms:

Tbd = V*Zpost/(V - Zper)

Break-even point formula in physical terms (in units of products or goods):

Tbn = Zpost / (C - ZSper)

How far the company is from the break-even point shows margin of safety.

Formula for safety margin in monetary terms:

ZPd = (B -Tbd)/B * 100%

Safety margin formula in physical terms:

ZPn = (Rn -Tbn)/Rn * 100%

The margin of safety shows how much revenue or sales volume must decrease for the company to reach the break-even point.

The margin of safety is a more objective characteristic than the break-even point. For example, the break-even points of a small store and a large supermarket can differ thousands of times, and only the margin of safety will show which of the enterprises is more stable.

Financial strength margin shows the excess of actual sales revenue over the profitability threshold. The larger this value, the more financially stable the p/p is. Financial strength margin shows how much sales (production) of products can be reduced without incurring losses.

The excess of real production over the profitability threshold is a margin of financial strength of the company:

Financial strength margin= Revenue - Profitability threshold.

The margin of financial strength of an enterprise is the most important indicator of the degree of financial stability. The calculation of this indicator allows us to assess the possibility of an additional reduction in revenue from product sales within the break-even point.

In practice, three situations are possible, which will have different effects on the amount of profit and the margin of financial strength of the enterprise:

1) sales volume coincides with production volume;

2) sales volume is less than production volume;

3) sales volume is greater than production volume.

Both the profit and the margin of financial strength obtained with an excess of produced products are less than when sales volumes correspond to production volumes. Therefore, an enterprise interested in increasing both its financial stability and financial results should strengthen control over production volume planning. In most cases, an increase in a company's inventory indicates an excess of production.

Its excess is directly evidenced by an increase in inventories in terms of finished products, and indirectly by an increase in inventories of raw materials and starting materials, since the company incurs costs for them already when purchasing them. A sharp increase in inventories may indicate an increase in production in the near future, which must also be subject to rigorous economic justification.

Thus, if an increase in an enterprise’s reserves is detected in the reporting period, one can draw a conclusion about its impact on the value of the financial result and the level of financial stability. Therefore, in order to reliably measure the amount of the financial safety margin, it is necessary to adjust the sales revenue indicator by the amount of the increase in the enterprise's inventory for the reporting period.

Analysis of the cost-volume-profit ratio is sometimes called break-even point analysis in practice. This point is also called the "critical" or "dead" point or the "equilibrium" point. In the literature you can often find this point designated as BER (abbreviation “breakeven point”), i.e. point, or threshold, of profitability.

To calculate the break-even point (profitability threshold), three methods are used: graphical, equations and contribution margin.

At graphical method Finding the break-even point (profitability threshold) comes down to constructing a complex “costs - volume - profit” graph. The break-even point on the graph is the point of intersection of straight lines built according to the value of total costs and gross revenue. At the break-even point, the revenue received by the enterprise is equal to its total costs, while the profit is zero. The amount of profit or loss is shaded. If a company sells products less than the threshold sales volume, then it suffers losses; if it sells more, it makes a profit.

Revenue corresponding to the break-even point is called threshold revenue . The volume of production (sales) at the break-even point is called threshold production volume (sales), if an enterprise sells products less than the threshold sales volume, then it suffers losses, if more, it makes a profit.

Figure 1 - Break-even point

Equation method is based on calculating the enterprise’s profit using the formula:

Revenue - Variable costs - Fixed costs = Profit

Detailing the procedure for calculating the indicators of the formula, it can be presented in the following form:

(Price per unit × Number of units) - (Variable costs per unit × Number of units) - Fixed costs = Profit.

The equation method can also be used to analyze the impact of structural changes in the product mix. In this case, sales are considered as a set of relative shares of products in the total amount of sales revenue. If the structure changes, then the revenue volume may reach a given value, but the profit may be less. Under these conditions, the impact of a change in structure on profit will depend on how the assortment changed - towards low-profit or high-profit products.

A variation of the equation method is the marginal income method, in which the break-even point (profitability threshold) is determined by the following formula:

Break even= Composition and content of financial statements: Balance Sheet, Profit and Loss Statement. The purpose of financial documents and the possibility of their use in the management system.

The main sources of information for conducting financial analysis and adopting SD are accounting reports (Form 1 - Form 5).

Accounting statements must present an objective and complete picture of the financial position of the enterprise as of a certain date. Information compiled on the basis of the rules established by regulatory acts on accounting is reliable and complete. When generating financial statements, it is necessary to ensure the neutrality of information, that is, exclusively unilateral satisfaction of the interests of some user groups over others.

Book balance allows you to get a clear and unbiased idea of ​​the property and financial status of the enterprise. It reflects the state of the enterprise’s funds in monetary terms as of a certain date in 2 sections.

Balance:

1. Property:

By composition of investments:

Non-turnover assets (fixed assets and intangible assets);

Current assets (inventories, cash, accounts receivable).

2. Finn resources :

By sources of formation:

Own capital (section 3 “capital and reserves”);

Borrowed funds (sections 4 and 5).

2 interrelated interpretations of balance have become widespread:

1. Subject-material - the balance sheet asset shows the composition and location of property, the presence of which is confirmed by inventory

2. Cost-effective - a balance sheet asset expresses the amount of the enterprise’s costs resulting from previous business operations and financial transactions and the expenses incurred by it for possible future income; the liability reflects the obligations that arose in the process of attracting assets; its interpretation is of a legal nature

All obligations are legally ranked according to the obligation and priority of satisfaction (primarily short-term debt). The economic significance of the balance sheet liability lies in the fact that it reflects the sources of property formation. One of the purposes of the balance sheet is to characterize changes in the financial state of the enterprise during the reporting period.

Balance classification:

1) By sources of information: inventory, book (based on the General Ledger), general (based on the statement);

2) By time of compilation: introductory, current, liquidation, separation (if there are divisions), consolidation (if a merger);

3) By volume of information: single (1 structural subdivision), consolidated;

4) By type of activity: commercial organization, investment fund, bank balance sheet, insurance company balance sheet, budgetary organization balance sheet;

5) By the nature of the activity: balance of main activities, balance of non-main activities;

6) By type of ownership: state (municipal) enterprises, private enterprises (community, partnership), organizations with foreign investments;

7) Gradually clearing the balance sheet of unnecessary indicators: gross, net (net).

In Form 2 “Profit and Loss Statement” - data on income, expenses and financial results are presented on an accrual basis from the beginning of the year to the reporting date. Here you can find information about the Finnish result, both for the reporting period and for the previous one.

The types of profit are reflected here:

Gross (the difference between sales revenue and c/c);

From sales (the difference between gross and commercial expenses);

Before taxes (from sales + balance from other income and expenses);

Net (after taxation, i.e. before taxation - income tax).

Form 3 “Capital Flow Statement”» - contains information about the amount of capital at the beginning of the period, its receipt and use during the year and reflects the carryover balance at the beginning of the year.

Form 4 “Cash flow report”- contains information about cash flows, their receipts, taking into account their balance at the beginning of the activity in the context of current, investment and financial activities.

Accounting data reporting allow you to identify financial the position of the enterprise, its solvency and profitability.

1 - Bukh. reporting makes it possible to look more deeply into the internal and external relations of households. subject and enterprise, assess its ability to timely and fully pay for its obligations.

2 - External accounting users. information based on reporting data, they have the opportunity to assess the feasibility of purchasing the property of a particular enterprise, avoid issuing loans to unreliable clients, correctly build relationships with existing customers, and also evaluate financial position of potential partners.

3 - According to the reporting data, the head of the enterprise reports to the founders and other management and control structures. A thorough analysis of reporting allows us to reveal the causes of shortcomings in the operation of an enterprise, identify reserves and outline ways to improve its activities. That. the importance of reporting is great.

Seminar 4.2.

Corporate profit management - 4 hours

Issues for discussion

1. Describe the company's profit management mechanism.

1. Define the break-even point.

Determining the break-even point

The break-even point is the minimum volume of production and sales of products at which costs will be offset by income, and with the production and sale of each subsequent unit of product the enterprise begins to make a profit. The break-even point can be determined in units of production, in monetary terms, or taking into account the expected profit margin.

Effective management of the economic and financial results of an organization's production and economic activities is facilitated by the use of a methodology for analyzing the break-even point of production, which is based on the idea of ​​dividing costs into fixed and variable.

The break-even point analysis methodology serves to answer the question: How many units of products or services must a business sell to recoup its fixed costs? It is assumed that prices should be high enough to compensate for all direct (variable) costs and leave the so-called "contribution margin" to cover fixed costs and profit.

Once enough units of output have been sold to offset fixed or recurring costs, each additional unit sold will generate additional profit over and above variable costs. Moreover, the amount of increase in this profit depends on the ratio of fixed and variable costs in the organization’s cost structure.

Once the volume of products sold reaches a minimum quantity sufficient to cover variable costs, the organization makes a profit, which begins to grow faster than the growth of production volume. The same effect occurs in the case of a reduction in production volumes, that is, the rate of decline in profits and increase in losses outpaces the rate of decrease in sales volumes.

The methodology for analyzing the break-even point allows you to develop and apply the concept of economic (“operational”) leverage in an organization.

Concept lever arises when the organization’s costs include stable elements, not directly dependent (within certain limits) on the volume of work performed. As a result profits rise or fall faster than changes in production volumes.

It is necessary to determine the impact on profit (J) of changes in sales volumes of finished products (V). The elements that determine the relationship between these variables are: unit price (P), variable cost per unit (C) and fixed cost (F).

Equality must be observed:

Vcr * P = F + Vcr * C.

Hence the profit is equal to:

J = VP – (VC + F) or J = V(P – C) – F.

The last formula shows that the amount of profit depends on the number of units sold, the difference between the price of a unit of production and the amount of variable costs attributable to it, i.e. the amount allocated to cover fixed costs and the amount of fixed costs.

Another way to determine the impact of operating leverage is to use the coefficient S, which characterizes the ratio of profit to the total volume of products sold:

Let's modify the formula:

This relationship shows that the profit/revenue ratio from product sales depends on the difference between revenue and variable (direct) costs (that is, the contribution margin) per unit of products sold, reduced by the amount of fixed costs as a percentage of sales revenue. This dependence confirms the fact that with an increase in the share of fixed costs, the profit/revenue ratio from product sales decreases. The greater the fixed costs, the greater the reduction in S. A change in volume, price, or unit cost will have a disproportionate effect on S because F is a constant.

1. Describe the mathematical model for calculating the break-even point.

Break even

Break even

The break-even point is the minimum volume of production and sales of products at which costs will be offset by income, and with the production and sale of each subsequent unit of product the enterprise begins to make a profit. The break-even point can be determined in units of production, in monetary terms, or taking into account the expected profit margin. Synonyms: critical point, CVP point. Not to be confused with the payback point (of the project). It's not the same thing.

The break-even point in monetary terms is the minimum amount of income at which all costs are fully recouped (the profit is zero).

The break-even point in units of production is the minimum quantity of product at which the income from the sale of this product completely covers all the costs of its production.

The essence of marginal analysis is to analyze the ratio of sales volume (product output), cost and profit based on forecasting the level of these values ​​under given restrictions. It is based on the division of costs into variable and fixed. In practice, the set of criteria for classifying an item as a variable or constant part depends on the specifics of the organization, the adopted accounting policy, the goals of the analysis and the professionalism of the relevant specialist.

The main category of marginal analysis is marginal income. Marginal income (profit) is the difference between sales revenue (excluding VAT and excise taxes) and variable costs. Sometimes marginal income is also called the coverage amount - this is the part of the revenue that remains to cover fixed costs and generate profit. The higher the level of marginal income, the faster fixed costs are recovered and the organization has the opportunity to make a profit.

Marginal income (M) is calculated using the formula:

where S is sales revenue; V - total variable costs.

The economic meaning of this indicator is the increase in profit from the release of each additional unit of production:

M = (S-V) / Q = p -v

where M is specific marginal income; Q - sales volume; p - unit price; v - variable costs per unit of production.

The found values ​​of specific marginal income for each specific type of product are important for the manager. If this indicator is negative, this indicates that the revenue from the sale of the product does not even cover variable costs. Each subsequent produced unit of this type of product will increase the total loss of the organization. If the ability to significantly reduce variable costs is very limited, then the manager should consider removing this product from the range of products offered by the organization.

In practice, variable costs are more deeply detailed into groups of variable production, general production, general and other expenses. This entails the need to calculate several indicators of marginal income, from the analysis of which a decision is made about which groups of expenses can be most significantly affected by the impact on the final financial result.

Dividing costs into constant and variable, calculating marginal income makes it possible to determine the impact of production and sales volume on the amount of profit from the sale of products, work, services and the sales volume from which the enterprise makes a profit. This is done on the basis of an analysis of the break-even model (the “costs, production volume, profit” system).

The break-even model is based on a number of initial assumptions:

the behavior of costs and revenues can be described by a linear function of one variable - output volume;

variable costs and prices remain unchanged throughout the entire planning period;

the product structure does not change during the planned period;

the behavior of fixed and variable costs can be accurately measured;

At the end of the analyzed period, the enterprise has no inventories of finished products (or they are insignificant), i.e. sales volume corresponds to production volume.

The break-even point is the volume of output at which the enterprise's profit is zero, i.e. the volume at which revenue equals total costs. Sometimes it is also called the critical volume: below this volume, production becomes unprofitable.

Using the algebraic method, the zero profit point is calculated based on the following relationship:

I = S -V - F = (p * Q) - (v * Q) - F = 0

where I is the amount of profit; S - revenue; V - total variable costs, F - total fixed costs

From here we find the critical volume:

where Q " is the break-even point (critical volume in physical terms).

The critical volume of production and sales of products can be calculated not only in physical terms, but also in value terms:

S = F * p /(p - v) = Q" * p

where S is the critical volume of production and sales of products.

The economic meaning of this indicator is revenue at which profit is zero. If the actual revenue of the enterprise is greater than the critical value, it makes a profit, otherwise - a loss.

The above formulas for calculating the critical volume of production and sales in physical and value terms are valid only when only one type of product is produced or when the output structure is fixed, i.e. the proportions between different types of products remain unchanged. If several types of goods are produced with different marginal costs, then it is necessary to take into account the structure of production (sales) of these goods, as well as the share of fixed costs attributable to a specific type of product.

The closure point of an enterprise is the volume of output at which it becomes economically ineffective, i.e. at which revenue equals fixed costs:

where Q" is the closing point.

If the actual volume of production and sales of products is less than Q", the enterprise does not justify its existence and should be closed. If the actual volume of production and sales of products is greater than Q", it should continue its activities, even if it receives a loss.

Another analytical indicator intended for risk assessment is the “safety margin”, i.e. the difference between the actual and critical volumes of production and sales (in physical terms):

Kb = Of - Q "

where Kb is the safety edge; Of - the actual volume of production and sales of products.

K% = Kb / Qf * 100%,

where K% is the ratio of the safety edge to the actual volume.

The safety margin characterizes the risk of the enterprise: the smaller it is, the greater the risk that the actual volume of production and sales of products will not reach the critical level Q" and the enterprise will be in the loss zone.

Data on the value of marginal income and other derived indicators have become quite widespread for forecasting costs, sales prices of products, acceptable increases in the cost of production, assessing the effectiveness and feasibility of increasing production volume, in solving problems such as “make it yourself or buy it” and in other optimization calculations management decisions.

This is largely due to the comparative simplicity, clarity and accessibility of break-even point calculations. However, it must be borne in mind that the break-even model formulas are only suitable for those decisions that are made within an acceptable range of prices, costs and production and sales volumes. Outside this range, unit selling price and unit variable costs are no longer assumed to be constant, and any results obtained without such limitations may lead to incorrect conclusions. Along with its undoubted advantages, the break-even model has certain disadvantages, which are associated, first of all, with the assumptions underlying it.

When calculating the break-even point, they proceed from the principle of a linear increase in production and sales volumes without taking into account the possibility of a jump, for example, due to the seasonality of production and sales. When determining the conditions for achieving break-even and constructing the corresponding schedules, it is important to correctly set data on the degree of utilization of production capacity.

Analysis of the break-even point is one of the important ways to solve many management problems, since when combined with other methods of analysis, its accuracy is quite sufficient to justify management decisions in real life.

The break-even point determines what the sales volume must be in order for the company to break even and be able to cover all its expenses without making a profit. In turn, how profit grows with changes in revenue is shown by Operating Leverage (operating leverage).

To calculate the break-even point, you need to divide the costs into two components:

Variable costs - increase in proportion to the increase in production (volume of sales of goods).

Fixed costs do not depend on the number of products produced (goods sold) and whether the volume of operations increases or decreases.

The break-even point is of great importance in the matter of the viability of the company and its solvency. Thus, the degree to which sales volumes exceed the break-even point determines the margin of financial strength (margin of stability) of the enterprise.

Let us introduce the following notation:

B - sales revenue.

Рн - sales volume in physical terms.

Zper - variable costs.

Postage - fixed costs.

C - price per piece.

Zsper - average variable costs (per unit of production).

Tbd is the break-even point in monetary terms.

Tbn is the break-even point in physical terms.

Formula for calculating the break-even point in monetary terms:

Tbd = V*Zpost/(V - Zper)

The formula for calculating the break-even point in physical terms (in units of products or goods):

Tbn = Zpost / (C - ZSper)

In the figure below, the break-even point Tbn = 20 pieces

At the break-even point, the income line crosses and goes above the line of total (gross) costs, the profit line crosses 0 - moves from the loss zone to the profit zone.

Theoretical and methodological basis for determining the break-even point

For the successful development of the economy of any enterprise, it is necessary to study the relationship between the volume of production (sales) of products and costs and profits. This ratio is analyzed to study the complex of cause-and-effect relationships of the most important indicators of the final results of the enterprise, and the scientific substantiation of management decisions.

Tasks and stages of determining the break-even point of production

According to Vakhrushina, in the process of determining the break-even point, the following main tasks are solved:

The sales volume is calculated, which ensures full coverage of the enterprise’s costs;

The volume of sales is calculated, which ensures, other things being equal, the amount of profit required by the enterprise;

An estimate is given of the sales volume at which the enterprise can be competitive in the market, i.e., the calculation of the safety zone (field).

According to Sheremet A.D. The main steps in determining a safety point are:

1. Collection, preparation and processing of initial information in accordance with the conditions for analyzing the relationship between the volume of production (sales) of products and costs and profits;

2. Calculation of fixed and variable costs, break-even level and safety zone;

3. Justification of the volume of sales required to ensure the planned amount of profit.

Classification of costs into fixed and variable

Total costs, according to the degree of dependence on the volume of production, are divided into fixed and variable.

According to Sheremet A.D., fixed costs are costs whose value does not change with changes in the degree of utilization of production capacity, or changes in production volume (rent, communication services, administration salaries, etc.). Variables are costs, the value of which changes with changes in the degree of utilization of production capacity or production volume (these are direct material costs - raw materials, materials, fuel and electricity for technological purposes and labor costs - basic and additional payment for production labor x workers with contributions for social needs).

According to Ivashkevich, in current practice, the division of costs into fixed and variable is carried out by two main methods: analytical and statistical.

Analytical method. All costs of an enterprise are divided item by item into fixed and variable. This method is based on the use of variators (rate of cost growth / rate of growth (decrease) in production volume).

Statistical methods: minimum and maximum point method (mini-maxi method); graphical (statistical) and least squares method.

Mini-maxi method. Algorithm:

1) the max and min values ​​of production volume and costs are selected;

2) there are differences in the levels of production and costs;

3) the rate of variable costs per 1 unit is determined (the difference in the level of costs for the period / the difference in production levels for the period);

4) the total value of variable costs for the maximum and minimum volume of production is determined (the rate of variable costs per 1 unit of production * the corresponding volume of production);

5) the total amount of fixed costs at the maximum and minimum points is determined (the total amount of costs is the sum of variable costs at the maximum and minimum points).

Graphical method - the total amount of costs is an equation of total (gross) costs.

Data on total costs for different volumes is plotted on the graph, then a line is drawn and the point of its intersection with the Y axis shows the level of fixed costs.

Example 3. Y = 5 + 10x with production volume (units): 2, 4, 6, 8, 10.

100 80 60 40 20 10x (variable costs)

5 fixed costs 2 4 6 8 10

Least square method. Differentiation using the least squares method gives the most accurate results.

The value of variable costs (rv) is determined:

Rv = (p?X Uval - ?X? Uval) / (p?X2 - (?X) 2),

where n is the number of periods;

X - production volume.

Total fixed expenses:

Rfix = (? Uval? X2 - ? X Uval? X) / (p? X2 - (? X) 2)

Then, we substitute these values ​​into the total cost equation.

Determining the break-even point of production

According to Ivashkevich, dividing costs into fixed and variable, calculating amounts and coverage rates make it possible to determine the impact of production and sales volume on the amount of profit from the sale of products, work, services and the sales volume from which the enterprise makes a profit.

The break-even point (critical point, equilibrium point) is the volume of production (sales) that provides the organization with a zero financial result, i.e. the enterprise no longer incurs losses, but still has no profits.

According to Karpova, in the management accounting system, three methods are used to calculate the break-even point:

mathematical method (equation method);

marginal income method (gross profit);

graphic method.

Mathematical method (equation method)

To calculate the break-even point, first write down the formula for calculating the profit of the enterprise:

Unit price * X - Variable costs per unit * X - Fixed costs = 0,

where X is the volume of sales at the break-even point, pcs.

Then, on the left side of the equation, the sales volume (X) is taken out of brackets, and the right side - profit - is equated to zero (since the purpose of this calculation is to determine the point where the enterprise has no profit):

X * (Unit price - Variable costs per unit) = Fixed costs

Fixed costs

X = Price per unit - Variable costs per unit

Example. Fixed expenses of the enterprise are CU 28,000, and variable expenses are CU 19. for 1 piece Unit price CU 32 Determine the break-even point.

Solution: 28,000 / (32 - 19) = 2,154 pcs. - zero profit point

And also, knowing the critical volume, we can find the critical amount of revenue (2,154 * 32 = 68,928 CU)

Marginal income method (gross profit)

Marginal income is the amount of coverage, i.e. Marginal income must cover fixed costs so that the organization does not incur losses.

Marginal income = Revenue from sales of products - Variable costs;

Contribution Margin per Unit (Coverage Rate) = Price per Unit - Variable Cost per Unit

The coverage rate must cover the fixed costs per unit.

Revenue from sales of products (works, services) - Variable expenses - Fixed expenses = Profit

Marginal income = Fixed costs;

Marginal income per unit * X = Fixed costs;

Fixed costs Break-even point = Contribution margin per unit

Example. Fixed costs during the month amounted to CU 960,000, and variable costs CU 600. for 1 piece The price of the product is CU 1,200 per piece. Determine the zero profit point.

Solution: Contribution margin per unit = 1,200 - 600 = 600

960,000 / 600 = 1,600 - break-even point.

To make long-term decisions, it is useful to calculate the ratio of marginal income and sales revenue, i.e. determination of marginal income as a percentage of revenue. To do this, perform the following calculation:

Marginal income (RUB)

Sales revenue (RUB)

Graphical method

This method is based on the construction of two lines: the total cost line (Y = a + bx) and the revenue line (Y` = price * x). The intersection of these lines is the break-even point.

Line revenue costs profit revenue variable costs.

Break-even point loss fixed costs production volume.

Break-even point calculation

What is the selling price for the product?

The selling price of a product is the mechanism that brings money into a business. Logically, you should raise the price as high as possible to get the maximum margin (the difference between the selling price and the cost of your product). With sufficient margin from sales, you will be able to cover the costs of running the business. All that remains after paying off all expenses is your profit.

The second way is to reduce the unit cost of the product (the best idea for business) in order to get a higher margin by offering the average market price for the product.

Since your business is unknown to the bulk of potential buyers, the first thing you should pay attention to is whether you can offer buyers a lower price than your competitors. This is the most significant competitive advantage.

If your idea is other benefits for customers and the cost of your product is standard, then you need to look for a combination of advantages of your product or service that will be of particular value to customers, and they will be willing to pay a price above the market average for your product.

If you can't offer potential buyers a better price or greater value in purchasing your product, then you will have to spend a lot of time and money making your product attractive to potential buyers.

Margin is the basis of business income

The difference between the selling price and the cost of a product is the margin that allows you to weed out products that are unsuitable for business. What minimum margin can be considered acceptable for a new business? There is no direct answer to this question. There are only approximate numbers. If your product falls into the category of frequent consumption by customers, then the margin may not be very large, and the business will receive all its income from the number of sales. If sales are not very frequent, then the margin should be as large as possible. In any case, for a starting business the margin should be at least 40-45%.

Objectively speaking, this is a rather controversial assessment. Although, without a doubt, the business will be able to start and operate with a lower margin. But if your idea cannot provide such a margin at the start of the business, then it is unlikely that you will be able to create a successful business. In addition, the time to reach self-sufficiency will increase significantly and you will have to invest more money in the business and not for three or four months, but longer. Are you ready to run a business for 6 months without receiving any return from the business? Do your loved ones agree to wait for income for so long?

When you have decided on the selling price of your product or service, and your margin on the sale is more than 40-45%, then you need to calculate how many sales the business needs to make so that the business can recoup all its expenses, i.e. became self-sustaining.

Calculation of the business break-even point for one product (TBU)

Take the necessary data from the assessment plan table:

Fixed expenses – Amount b

Cost of a product or service – amount d

Fill out the table to calculate your business's profit for each volume (number) of sales. Use the following formulas:

Product cost = number of sales * per unit cost of product.

Total expenses = fixed expenses + total cost of products sold.

Sales revenue = selling price * number of sales

Profit = sales revenue – total expenses

If you do all the calculations in a spreadsheet, you can calculate the number of sales to achieve TBU for various conditions.

In our example, the business will become profitable after the 50th sale. Those. if you manage to sell 50 units of your product, then all subsequent sales are your net profit.

Experiment with different values ​​for fixed expenses, production costs, and product sales price and see how these values ​​affect the profitability of the business.

Evaluate the different options for allocating costs between fixed and variable costs from the previous assignment. See how this affects the number of sales required to reach the breakeven point.

To quickly calculate the number of sales, use the formula:

TBU (quantity) = SPR/(PC-SP)

For the example data we get 10000/(500-300) = 50 units of production. If the product is purchased one per person, then you need to do everything to create 50 potential buyers per month.

Calculation of TBU for several products

In the case of multiple products, you can calculate the required number of sales for each product if you first calculate the average selling price based on the sales margin of each product. If you have a small range of products or services, you can calculate the average selling price.

Knowing the cost of each of your products, calculate the cost of average sales:

(Selling Price Product_A) * 0.12 + (Selling Price Product_B) * 0.81 + (Selling Price Product_N) * 0.7 = average price per sale.

From the previous example, let us assume, for ease of calculation, that the markup (margin) is the same for all products at 45%. The average selling price (ASP) in this case will be the average cost (SP) * (1+ 0.45). Then

TBU (in monetary units) = TBU (quantity) * SPC.

For our example, 50 * 500 USD. = 25000 USD That is, you need to earn at least 25,000 USD per month so that you can recoup all costs.

If you have data on the average purchase (in cu) per customer for a similar business, then you can get the number of customers who are willing to purchase your products to provide the required income for your business.

Number of buyers = TBU (in monetary units) / average purchase size. Let's assume that the cost of an average purchase is 750 USD, then we need to serve 25,000/750=34 customers.

Plug your calculations into a spreadsheet and determine the break-even point for your product or products. Assess whether your business can attract enough customers in 3-4 months to then sell that or more units of the product each month. Reduce fixed costs. At first, refuse a prestigious office or expensive equipment. Reduce all fixed expenses to a minimum. Try to reduce the cost of your product.

If you doubt the correctness of your theoretical calculations (and this should always be the case) because you do not have reliable information about the preferences of potential customers, then you need to test your assumptions about the price of the product in practice before opening a business. The test method is to develop and execute a startup marketing plan.

It is your responsibility to make sure in practice that your calculations are close to reality. If the results turn out to be bad, then abandon this business idea - it is not profitable.

It is necessary to calculate break-even points not only before starting a business, but also during its operation. It doesn't take much time and isn't difficult at all. It's much more difficult to achieve this in real life.

If the number of sales per month and the number of buyers required are quite realistic based on your work experience, then start planning a starting marketing plan to determine how to attract them, how to improve the product and how much money will be needed for this.

Enterprise break-even point

The break-even point is the main financial goal that a new business strives for at the beginning of its existence. The main goal is to break even. That is, to find the point where income is equal to or greater than expenses.

Variable expenses depend on the firm's business activities. If sales increase, then variable costs also increase. And vice versa. This, by the way, gives you the opportunity to regulate such costs. Variable costs are determined by how much resources and money are spent per unit of output. These include both production costs and logistics costs.

Fixed expenses are a weight on the feet of an enterprise. Payment for rent of premises, salaries to employees, monthly payments for financial obligations, etc. It is advisable to minimize fixed expenses in order to have better dynamism in the development of the business.

Your task is to calculate all the variable and fixed costs of your company. Only after this can you calculate the break-even point, the point above which profit will begin. What income is needed to cover all your expenses for a month, quarter, year? How much do you need to sell to get that kind of income from your products?

We determine how much margin (profit) we get from each unit of product sold.

For example, if you sold a unit of product for 10 rubles, and spent 5 rubles, then the margin will be 5 rubles.

If a month's fixed costs amount to 100 rubles, then you need to divide 100 rubles by 5 rubles (margin) - and you will get that to reach the break-even point you need to sell 20 units of products. This is a calculation in physical terms, in units of production.

In value terms, we multiply 20 units by the selling price of 10 rubles and get 200 rubles. This will be the break-even point of your business scheme. That is, after selling 21 units you will have a net profit!

The break-even point directly depends on what price you set for the product and how much you can sell over a certain period, that is, how much turnover you can make, and with what markup.

It is clear that at certain costs, increasing the price of your product will reduce the time to reach the break-even point and will provide more net profit. Therefore, work with price and marketing to increase sales comes to the fore.

Break-even point analysis

Business plan development tools

1. Brief information about the tool

Break-even analysis is a useful tool for examining the relationship between fixed costs, variable costs and profits. Break-even Point determines when an investment will generate a positive return. This can be shown graphically or simply mathematically. Break-even analysis calculates the physical volume of production at a given price required to cover all costs. Break-even price analysis calculates the price required for a given level of production to cover all costs. To explain how break-even analysis works, it is necessary to define costs.

Fixed costs incurred after the decision to begin business operations are not related to the level of production. Fixed costs include (but are not limited to) equipment depreciation, interest costs, taxes, and general overhead. Total fixed costs – The sum of fixed costs.

Variable costs are directly related to production volume. They may include cost of goods sold or production expenses, such as labor and electricity costs, food, fuel, veterinary services, irrigation and other expenses directly related to the production of commodities or investment in a capital asset. Total Variable Cost (TVC) is the sum of the variable costs for a given level of output or production.

Average variable cost is the variable cost per unit produced, or TVC, divided by the quantity produced.

Break-even Point analysis should not be confused with Payback Period, the time it takes to recoup an investment.

In the terminology of Value Based Management, the break-even point should be defined as the level of the operating profit margin ratio at which the business/investment receives the minimum acceptable level of profitability, i.e. total capital costs.

BEP can be calculated using the following formula:

BEP = TFC/(SUP - VCUP)

BEP - break-even point (product units);

TFC - total fixed costs / total fixed costs;

VCUP - variable costs per unit of production,

SUP - sales price to the production department.

2. Using the tool when developing a business plan

The main advantage of break-even analysis is that it explains the relationship between costs, output and profits. It can be expanded to show how changes in fixed-variable cost ratios, raw material prices, or revenues will affect revenue levels and break-even points. Break-even analysis is most useful in simulation modeling using partial budgeting or capital budgeting methods. The main advantage of using break-even analysis is that it shows the minimum level of economic activity required to avoid losses.

The main limitations of break-even point analysis:

Best suited for single product analysis;

It may be difficult to classify costs as both variable and fixed;

3. Approaches to developing a business plan

There are the following options for executing/preparing a business plan:

Independent development by the project initiator;

Transferring the project to third party specialists for development.

In this case, the following forms of execution/preparation of a business plan are possible:

Individual development by one specialist;

Individual (personalized) development, but with the participation of a TOP manager who will be responsible for the implementation of the project;

Collegial (with the help of a working group) development of a project with the participation of a TOP manager who will be responsible for the implementation of the project.

Depending on the:

Availability of the necessary specialists with the appropriate level of qualifications,

The economic and technological complexity of the project itself,

Investor's specific requirements,

Experience in the target market and with the selected volumes of activity, etc.

Works can be in 6 different combinations of forms and options. However, only 2 of them are acceptable (indicated in the figure by green areas), both from the point of view of cost justification and from the point of view of the quality of the project’s development and its suitability for justifying the effectiveness of the project to investors and for further use during implementation. At the same time, independent (by the enterprise itself) personalized development with the involvement of a top manager is acceptable when developing small and uncomplicated projects in familiar areas of activity. For large projects (with a large volume of investments, involving new technologies, external investors, with the prospect of entering new markets), the most practical option is to develop it by a group of third-party specialist consultants with the obligatory involvement of a top manager in the process, who will subsequently implement the project.

4. Statistics on the protection of business plans for investment projects and business plans for business development developed by Lex Group - 100%.

The most significant and successfully justified (protected) business plans (investment projects) in 2008-2009:

Business plan for the development of the activities of Tyumenstalmost LLC until 2013 (for obtaining commercial loans and government support);

Business plan for the construction of a multi-storey parking lot, a car service center and a car showroom in Tyumen (to attract a strategic investor);

Business plan for expanding the production capacity of the livestock complex of CJSC MTS Gagarinskaya (to obtain a preferential loan);

Business plan for the investment project “Development of a recreational area in the area of ​​Lake Marukhi, Abatsky municipal district, Tyumen region” (to receive government funding);

Investment memorandum “Recreation center “Lesnaya Skazka” (to search for a strategic investor);

Business plan for the construction of the Vershina shopping and entertainment complex, Khanty-Mansi Autonomous Okrug (to attract investors and receive government support);

Financial and economic justification for the development strategy of the Shuryshkarsky district of the Yamal-Nenets Autonomous Okrug;

Project for the creation and development of the Khanty-Mansi Autonomous Okrug Agro-industrial holding (to attract investors and obtain government funding);

Business plan for organizing a Call Center in the Tyumen region (to attract a private investor);

Business plan for organizing the production of a unique organic fertilizer in the south of the Tyumen region on an industrial scale (to attract private investors);

Business plan for creating an enterprise for processing mercury-containing household and industrial waste in Tyumen (to attract private investors).

1. Draw a graphical model for calculating the break-even point.
2. IV. Determination of standard costs and calculation of financial support for the implementation of state (municipal) tasks

In any business, it is important to calculate at what point the enterprise will fully cover losses and begin to generate real income. For this purpose, the so-called break-even point is determined.

The break-even point shows the effectiveness of any commercial project, since the investor must know when the project will finally pay off, what is the level of risk for his investment. He must decide whether to invest in the project or not, and calculating the break-even point in this case plays an important role.

What is the break-even point and what does it show?

Break even ( break-evenpoint–BEP) – sales volume at which the entrepreneur’s profit is zero. Profit is the difference between income (TR – total revenue) and expenses (TC – total cost). The break-even point is measured in physical or monetary terms.

This indicator helps determine how many products need to be sold (work performed, services provided) in order to break even. Thus, at the break-even point, revenues cover expenses. If the break-even point is exceeded, the company makes a profit; if the break-even point is not reached, the company incurs losses.

The BEP value of an enterprise is important in determining the financial stability of the company. For example, if the BEP value is rising, this may indicate problems related to making a profit. In addition, BEP changes with the growth of the enterprise itself, which is caused by an increase in turnover, the establishment of a sales network, price changes and other factors.

In general, calculating the break-even point of an enterprise makes it possible to:

• determine whether to invest money in the project, given that it will only pay off with the next sales volume;
• identify problems in the enterprise associated with changes in BEP over time;
• calculate the value of changes in sales volume and product price, that is, how much the sales/production volume should change if the price of the product changes and vice versa;
• determine by what value revenue can be reduced without ending up at a loss (if actual revenue is greater than estimated).

How to calculate your break-even point

Before finding the break-even point, you must first understand which costs are fixed and which are variable, since they are mandatory components for the calculation, and it is important to divide them correctly.

Constants include: depreciation deductions, basic and additional salaries of administrative and management personnel (with deductions), rent, etc.

Variables include: basic and additional materials, components, semi-finished products, fuel and energy for technological needs, basic and additional wages of main workers (with deductions), etc.

Fixed costs do not depend on production and sales volume and practically do not change over time. The change in fixed costs can be affected by the following factors: growth/decrease in the capacity (productivity) of the enterprise, opening/closing of a production workshop, increase/decrease in rent, inflation (depreciation of money), etc.

Variable costs depend on production volume and change with changes in volume. Accordingly, the greater the volume of production and sales, the greater the amount of variable costs. Important! Variable costs per unit of output do not change with changes in production volume! Variable costs per unit of production are conditionally constant.

Calculation formula

There are two formulas for calculating the break-even point - in physical and monetary terms.

• Fixed costs for volume (FC– fixed cost);
• Unit price of goods (services, works) (P– price);
• Variable costs per unit of production (AVC – averagevariablecost).

BEP=FC/(P-AVC)

In this case, the calculation results will result in a critical sales volume in physical terms.

• Fixed costs (FC – fixed cost);
• Revenue (income) (TR – total revnue) or price (P – price);
• Variable costs per volume (VC - variablecost) or variable costs per unit of production (AVC - average variable cost).

First, you need to calculate the marginal income ratio (the share of marginal income in revenue), because this indicator is used when calculating the break-even point in monetary terms and marginal income. Marginal revenue (MR – marginalrevenue) is found as the difference between revenue and variable costs.

Since revenue per unit is price (P=TR/Q, where Q is sales volume), contribution margin can be calculated as the difference between price and variable costs per unit.

The marginal income ratio is calculated using the following formula:

or (if MR is calculated based on price):

Both formulas described above for calculating the contribution margin ratio will lead to the same result.

The break-even point in monetary terms (this indicator is also called the “profitability threshold”) is calculated using the following formula:

BEP=FC/KMR

In this case, the calculation results will result in a critical amount of revenue at which the profit will be zero.

To provide greater clarity, it is necessary to consider specific examples of calculating the break-even point for various types of organizations.

An example of calculating the break-even point for a store

In the first example, we will calculate the break-even point for a trading enterprise - a clothing store. The specifics of the enterprise are such that it is inappropriate to calculate the break-even point in physical terms, since the range of goods is wide, prices are different for different product groups.

It is advisable to calculate the break-even point in monetary terms. Fixed costs associated with operating a store include:

• for rent;
• salaries of sales consultants;
• deductions from wages (insurance contributions - 30% of the total wages);
• for utilities;
• for advertising.

The table shows the amounts of fixed and variable expenses.

In this case, we will take the amount of fixed costs equal to 300,000 rubles. Revenue is 2,400,000 rubles. The amount of variable costs, which include purchase prices of items, will be 600,000 rubles. Marginal income is equal to: MR=2400000-600000=1800000 rubles

The marginal income coefficient is equal to: K MR = 1800000/2400000 = 0.75

The break-even point will be: BEP=300,000/0.75=400,000 rubles

Thus, the store needs to sell clothes worth 400,000 rubles to make zero profit. All sales over 400,000 rubles will generate profit. The store also has a financial strength margin of 1,800,000 rubles. The margin of financial strength shows how much a store can reduce revenue and not go into the loss zone.

An example of calculating the break-even point for an enterprise

In the second example, we will calculate the break-even point for the enterprise. Small and medium-sized industrial enterprises often produce homogeneous products at approximately the same prices (this approach reduces costs).

Permanent	rubles	Variables per unit of production	Unit price, rub	Production volume, pcs.	rubles
factory overhead	80 000	costs of materials (for the entire production volume)	150	1000	150 000
depreciation deductions	100 000	costs of semi-finished products (for the entire production volume)	90	1000	90 000
AUP salary	100 000	wages of main workers	60	1000	60 000
utility costs	20 000	deductions from wages (insurance contributions - 30% of the total wages)	20	1000	20 000
Total	300 000		320		320 000

The break-even point will be equal to:

BEP=300000/(400-320)=3750 pcs.

Thus, the company needs to produce 3,750 units to break even. Exceeding this volume of production and sales will lead to profit.

Many argue that before doing so, it is useful to conduct a survey of representatives of the target group.

• the company keeps the same price as sales volume increases, although in real life, especially over a long period of time, this assumption is not entirely acceptable;
• costs also remain the same. In fact, as sales volume increases, they usually change, especially at fully loaded capacity, where the so-called law of increasing costs begins to work and costs begin to grow exponentially;
• TB implies the complete sale of goods, that is, there are no remaining unsold goods;
• the TB value is calculated for one type of product, therefore, when calculating an indicator with several different types of goods, the structure of types of goods must remain constant.

Break-even point chart

For clarity, we will show how to calculate the break-even point (example on the chart). You need to draw a revenue line, then a line of variable costs (sloping line) and fixed costs (straight line). The horizontal axis shows sales/production volume, and the vertical axis shows costs and income in monetary terms.

Then you should add up the variable and fixed costs, obtaining the gross cost line. The break-even point on the graph is at the intersection of the revenue line with the gross cost line. On our chart, this point equals 40% of sales volume.

Revenue in TB is threshold or critical revenue, and sales volume is, respectively, threshold or critical sales volume.

You can independently calculate the break-even point (formulas and graphs) in Excel by downloading the file (16 kB).

conclusions

In general, the break-even point is an extremely important indicator when planning production and sales volumes. This indicator also allows you to understand the relationship between costs and income and make decisions regarding changes in prices for goods (works, services).

This indicator is necessary in any business and when assessing an investment project for making decisions at the strategic level.

Video about how to attract an investor you will need to show the BEP calculation: