Generally speaking, the value of a business is determined by its future profit potential. The pre-seed funding stage commences with your idea for a new business and 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. Therefore, you will need to know how to calculate the break-even point and consider how long it might take to achieve this milestone for your planning.
- Break-even point
- The break even point is the production or operational level where total revenues equals total expenses.
- Fixed Costs
- The expenses that are not dependent on the amount of goods or services produced by the business.
- Variable Costs
- Costs that are volume related and are paid per quantity or unit produced.
Read the following section of the Introduction to Business course published by Lumen Learning:
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 will you need to sell to break-even.
- Estimate how long it will take for your start-up to break-even.
