by: Francisco J. Colayco
It may be that readers may be less interested in the analysis of a business. However, I’d like to address those who might want to learn for a business they now have or for their planning of a future business.
Break-even in business means how much you need to sell (i.e., how 
many units of products you need to sell at a given unit price) so that you will be able to sustain your business. Break-even does not mean you are losing money but it also does not mean that you are making money. If your sales are below your break-even, you will be incurring losses and if it is higher, your will be making money.
For big businesses, there will be finance people who can do all the required analysis. However, for a small business, the owner will have to do the analysis himself and it may not be so easy for those who do not really have experience. I will try to help you to compute break-even. You do not have to think in a complicated way. You can just use the simplest forms possible.
1. You need a “Profit and Loss Statement” or P&L of your Business preferably per month. This means you have to calculate your Sales, the Cost of Sales and Expenses for every month.
2. The “Cost of Sales” or CS is what you spend to make the product that you sell. If you are just trading or in “buy and sell” like sari-sari stores, your CS is the amount that you pay for the products you sell.
3. For your Expenses, you need to separate into Fixed and Variable expenses. The variable expenses are those that are directly related to the product when you make a sale. For those in trading, your variable expenses are your CS and maybe commissions you may pay depending on how much you sell. If you are a service business, you may not even have variable expense.
4. Fixed Costs are expenses you will spend whether you sell anything or not. Examples are rent, utilities, telephone, salaries and benefits. Notice that these are expenses that do not change much when there are small changes in sales. You will spend these amounts whether you sell or not. Of course, if your sales increase very much, you will probably have to add people and spend more fixed costs. But let’s just assume that these are fixed costs for our break-even analysis.
5. The basis for determining your break-even sales is your sales price per unit of your product (e.g. per kg, or per piece or per hour, etc, etc).
Want to read more? Click here for the rest of the article!