What Is a Break-Even Analysis?

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What Is a Break-Even Analysis?

A break-even analysis is used by businesses to determine when the business’ revenue equals their costs. This is an important analysis to make for start-up companies and new businesses, because it defines the point at which the business begins to become profitable. Unless the “break-even” point is reachable, it would not make sense to pursue the business endeavor. Thus, a proper business plan should include some form of a break-even analysis to help guide the company’s decisions.

What Should Be Included in a Break-Even Analysis?

A proper break-even analysis should cover points such as:

All of the figures will be compared against one another to determine at what point the company will break even. This is a separate consideration from other goals, such as the amount of profit the company intends to make. Many figures and calculations may be estimates, especially if the business has not already started yet. Sometimes an existing business may need a break-even analysis when implementing new changes. In those cases, data from previous years can be used as well.

What Are Some Common Disputes over Break-Even Analyses?

Break-even analyses can lead to various legal issues and disputes. These can include:

Many of these legal issues can be involved, since the company’s budget involves a consideration of all the different costs and expenses. If the revenue and income is not reflected properly or accurately, it could lead to financial or legal troubles down the road.

In some cases, a lawsuit may be required in order to rectify the company’s losses. For instance, if an instance of fraud occurs with regards to the figures used, the company might face a loss of profits, as well as fines and other penalties. In such cases, the defendant party may be required to pay a damages award to help compensate for the losses they caused.

Do I Need a Lawyer for Help with a Break-Even Analysis?

Break-even analyses can often be quite complex and may involve a whole range of different factors. You may need to hire a business lawyer near you if you need any assistance with, or have any questions regarding a break-even analysis. Your attorney can help provide guidance during the process, to ensure that your business plan stays in line with local, state, and federal laws. Also, in the event of a legal dispute or conflict over a business plan, your lawyer can provide you with representation in a court of law.

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Last Modified: 03-04-2015 10:07 AM PST

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