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8.1 Break Even Point Analysis

The Break Even Point is one of the most key pieces of financial analyis that a small business owner like Jack Gordon can undertake when writing out the business plan for a small business like A Touch of Tuscany This analysis tells Jack Gordon just how many units of products or service have to sold in order to cover the fixed costs faced by the busienss. This analysis tells the business owner how much they need to sell in order to stay alive and stay

In our analysis, where we are calculating the break even point in terms of meals served, we take in the operating expenses for the first year of 2009 which are projected to be at $837k and allocate $439k of those costs to being fixed and the othere to be variable. We have input the gross margin rate for the first years from the financials to be 65% and are using $50 as the sales price per unit of product or service.

Once we input these parameters into the break even analysis template we find that for each sales of $50, we are looking at a gross profit of $32.50 which ofcourse is 65% of the $50. When dividing the adjusted operating expenses of $439 by the $32.50 of gross profit per unit of sale, we come up with $13,510 meals.Thus based on our projections we will need to sell 13,510 meals in 2009 to break even. Currently we are projecting to sell 25,516 meals in a good marketas per our analysis in section 5.7. Thus we need to only sell 52% of our projected meals in the first year to be able to break even - and that is a number thatwe are very comfortable with. Even in the event of a very tough economic environment, we anticipate that we will be able to achieve this break even point in sales.

Clearly if our costs were to increase a lot, we would have to ensure that some of this amount is being passed along to the customer in the form of slightly higherprices on the menu or we risk increasing our break even point.

Quick Links:

  1. Go to the Corresponding Template section for this industry.
  2. Go to the Corresponding Questionnaire section for this industry.

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