Explain the importance of a break-even point for a small business
What will be an ideal response?
Answer: A break-even point is like a score card for a small business. It tells you how much revenue you must take in each month in order to pay all your expenses. In a sense, the break-even point tells you whether you are above or below water. If you are not meeting the break-even point for a particular month, it means you are underwater and having financial difficulties. On the other hand, if the business is greatly exceeding its break-even point, you might consider expanding or taking a risk that may have a big payoff. Small businesses that consistently do not meet the break-even point rarely survive. However, there are ways to remedy these problems such as cost-cutting, increasing efficiency, adjusting business goals, and downsizing employees.
You might also like to view...
The contribution margin ratio increases when
a. fixed costs increase. b. fixed costs decrease. c. variable costs as a percentage of sales decrease. d. variable costs as a percentage of sales increase.
Which of these statements about internal rate of return analysis is BEST?
A) If the IRR is less than the company's required rate of return, the project is worth funding. B) Projects having lower IRR are generally superior to those having higher IRR. C) IRR and NPV calculations always make the same investment recommendations. D) If net outflows follow a period of net inflows, IRR may give conflicting results.