Previous feasibility analysis

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.Símbolos Entretrain-31

 

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:

formula1

 

 

 

 

But, what is sales margin or gross margin?

 

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:

 

formula2

 

*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 ‚Äď 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

 

Salaries promoter partners
Social Security promoter partners (self-employed)
Salaries staff
Social Security undertaken by the company (staff)

OPERATING COSTS

 

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

 

Depreciation of fixed assets

FINANCIAL EXPENSES

 

Financial expenses

TOTAL EXPENSES

 

Sale margin (%)

MONTHLY BREAK-EVEN POINT WITHOUT VAT

 

VAT (%)

MONTHLY BREAK-EVEN POINT WITH VAT

 

YEARLY BREAK-EVEN POINT WITHOUT VAT

 

YEARLY BREAK EVEN POINT WITH VAT