When planning a business, it is essential to determine the break-even point to check the profitability of the business idea. The break-even point is the point at which revenues cover costs and therefore neither profit nor loss is generated. This calculation is crucial to understand how much revenue must be generated for the company to survive.

Why is bottom-up planning crucial?

It is not enough to simply roll the numbers and roughly estimate the break-even point. Rather, it is important to carry out sound bottom-up planning in order to develop a deep understanding of the operational business and its dynamics. All relevant cost factors should be taken into account in order to enable a realistic assessment of the break-even point.

Calculating the break-even point turnover:

In addition to including business expenses (wage costs, production costs, etc.), calculating the break-even point requires taking into account several factors that are often forgotten, including:

• Level of private living expenses
• Income tax
• Repayments

By comparing these expenses with the planned income, the break-even point can be determined. This calculation provides answers to important questions such as:

• How much turnover is needed to cover the fixed costs (and possibly also your private fixed costs!)?
• What is the minimum number of products that must be produced and sold to cover fixed costs?

The importance of the break-even calculation in the business plan:

The break-even point is a crucial criterion for the profitability of a business idea. It is important for both the entrepreneur and potential investors to present this calculation clearly and plausibly in the business plan. Well-founded bottom-up planning makes it possible to realistically assess the profitability of the company and identify potential risks at an early stage.

Conclusion:

Bottom-up planning is a crucial step in determining the break-even point and profitability of a company. A thorough analysis of all relevant cost factors is essential to enable a realistic assessment of the break-even point and to identify potential risks at an early stage. By presenting a clear and plausible calculation in the business plan, entrepreneurs and investors can jointly assess the profitability of the business idea and make well-founded decisions.