Level 2 Business and Economics: Break-Even Analysis
This time next year, we'll be millionaires!'
So said a famous TV comedy character. It might be a dream that many of us have, but the reality of making a million by being in business is reserved for a relatively small number. The vast majority of people in business tend to make far more modest sums of money; also, a number of people fail and have to close the business down.
We saw in the last resource in this series (http://www.bized.co.uk/educators/level2/finance/lesson/cashflow1.htm) that things like cash flow can be a problem that causes a firm to have to close down even if the basic business idea is sound and there is a market for the product or service.
It is useful to make sure that we really understand what we mean by 'profit' in business - the term is used quite loosely in lots of cases and there are plenty of other phrases that might be referring to profit such as 'making money', which we use without always thinking about the issue as clearly as we might.
Image copyright: Michal Koralewski, from stock.xchng.
This resource is going to look at bringing together a number of things we have looked at so far in the Level 2 series of resources - price, cost, revenue, profit and loss. It will also introduce the idea of break-even. This is something that a business can use to help it make a number of important decisions about how it runs its business.
Break-even is a useful planning tool; it gives business information about how many products it needs to sell, given the price it is charging and the costs it faces, before it begins to make profits.