Difference between revisions of "Introduction to entrepreneurship/IENT103/Valuing/Break-even"

Latest revision as of 22:52, 18 February 2019

The pre-seed funding stage commences with your idea for a new business, and with initial funding for the entrepreneur to progress a working prototype or minimum viable product. The objective of this phase is to achieve the break-even point, that is, the point where a business starts to make a profit. It is important, then, for you to

• know how to calculate the break-even point, and
• consider how long it might take to achieve this milestone for your planning.
  

Definitions

Break-even point

The break-even point is the production or operational level at which total revenue is equal to total expenses. In other words, you do not make a profit or a loss, but you break even.

Fixed Costs

These are expenses that are not dependent on the amount of goods or services produced by the business. Examples include rent and insurance.

Variable Costs

These are costs that are volume-related (such as the cost of raw materials), and are paid per quantity or unit produced.

Reading

Read the following section of the Introduction to Business course published by Lumen Learning:

• Lumen Learning. (n.d.). The Break-Even Point

Tasks
Using the outputs from the financial statements learning challenge:

• Estimate the break-even point for your start-up business, i.e how many units or services you will need to sell to break even.
• Estimate how long it will take for your start-up to break even.

Reflection

In your learning journal blog, write a short reflection (200-250 words) on what you have learned about the break-even point, and why it is important for entrepreneurs to consider. For example, what is the main purpose of conducting a break-even analysis? What would happen to your break-even point if your fixed costs were to increase?

1. Remember to tag or label your post using the course code: IENT103 (This is needed to harvest a link to your blog post in the course feed.)