A business’ breakeven Sales/GP$ is typically expressed as the GP$ required to produce a $Nil profit position for the month.
It is a useful marker for a business as it tells a business owner what level of Sales/GP$ they need to generate monthly to cover all their expenses ie. the minimum level of monthly Sales/GP$ to avoid a loss.
I have used Sales/GP$ interchangeably as GP$ are what is needed to pay expenses, however Sales generate GP$ and obviously are what a business targets.
Breakeven is relatively simple to calculate from a profit & loss report.
The standard calculation uses all expenses between the GP$ and net profit lines, converted to a monthly average. This is the amount of monthly GP$ to breakeven.
Cash breakeven is a variation and often a more relevant measure as it removes non-cash items such as depreciation from the expense base and tells you the amount of cash required to avoid a cash deficit for the month. This is especially relevant during tough times.
Expanding this cash theme, should the business have monthly cash commitments eg. loan/lease repayments then these commitments are added to the expense base.
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