PREVIOUS FEASIBILITY ANALYSIS
Although we are in a very initial stage of our project development, it is advisable to make a prevision economic analysis, even though we do not have exhaustive information yet.
In order to that, we will use a very simple economic tool allowing calculating the BREAK-EVEN POINT.
The Break-Even Point can be defined as the minimum sale or turnover level we have to reach for all the activity costs to be covered. Knowing the break-even point in advance is basic to evaluate, through a quick analysis, the possible economic feasibility of the company. We have to compare the minimum volume of sales required for the project to be considered as feasible with the present market situation and its capacity to absorb our offer.
To calculate it, we need to know two aspects:
- Monthly fixed costs
- Gross margin (or margin on sales) of our activities as a percentage.
The formula to calculate it is as follows:
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But, what is sales margin or gross margin?
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It is the percentage of gross profit we get from the sale price once the variable costs directly linked with the sale have been subtracted.
Formula to calculate it:
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*purchase cost or variable cost linked to the sale
To understand it better, let us use an example:
Example: If company A works selling industrial vehicles and the average sale price of each vehicle is 30,000 euro, whereas the price to acquire of each vehicle, including the purchase price, transport to its premises and taxes is 25,500 euro, what is the sale margin?
Sale margin ==((30.000 – 25.500) /30.000)x 100 = 15%
Once you know the main concepts, using the enclosed template, calculate the break-even point of your enterprise project:
STAFF EXPENSES |
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Salaries promoter partners | |
Social Security promoter partners (self-employed) | |
Salaries staff | |
Social Security undertaken by the company (staff) | |
OPERATING COSTS |
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Renting | |
Supplies (electricity, water, gas) | |
Communications (telephone, internet) | |
Insurance premium | |
Independent professional services (agencies) | |
Taxes | |
Travel and subsistence | |
Office supplies and consumables | |
Publicity and public relations | |
Repairs and maintenance | |
Other expenses | |
DEPRECIATION ALLOCATION |
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Depreciation of fixed assets | |
FINANCIAL EXPENSES |
 |
Financial expenses | |
TOTAL EXPENSES |
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Sale margin (%) | |
MONTHLY BREAK-EVEN POINT WITHOUT VAT |
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VAT (%) | |
MONTHLY BREAK-EVEN POINT WITH VAT |
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YEARLY BREAK-EVEN POINT WITHOUT VAT |
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YEARLY BREAK EVEN POINT WITH VAT |
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