The balance point provides entrepreneurs the amount to be billed or units to be sold to match costs with revenues.

The goal of any company of any size may be, is to obtain benefits from its activities. All those people who risk their capital directly into a business project, as those who invest in it, fully confident that they will receive benefits. The company aims to create wealth and does this in two ways: directly to the job creation and other indirect collaboration with suppliers and end customers that are aimed its products or services.

The equilibrium point in the company

The SWOT analysis position the company in the market, but the problem is in knowing when reaching the same sufficient benefits to cover the full costs and allow, their creators have a portion of those benefits. All entrepreneurs know, although some forget that the money from the cash is not all profit.

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But few entrepreneurs know when your company begins to generate. Never have arisen and, having to pay staff and suppliers, plus expenses, is enough for them. They rely on the balance end of the year to meet your company’s figures. And many of them have not heard of equilibrium of your business.

Calculation of the equilibrium point of a business

And the point of equilibrium of a company is none other than that which equals the total costs to total revenue. It is the time when there is no gain or loss. Above it are the gains and losses below. Bearing in mind that if you can not find the balance point in a company will not know what your return, it is necessary that the activity of it may be feasible to convert it into tangible data.Needed, to obtain the equilibrium point, the following information: Fixed Costs Company: variable costs in terms of units produced, number of units produced and turnover of the units produced.

The chart reflects what a very illustrative: The company’s fixed costs are reflected by a horizontal line, being always the same: the variable costs arise from fixed costs because they are linked to production, at the bottom, horizontally, are the units produced and, perpendicularly, the benefits the company receives from selling them.

Emerging from the blue line indicates the total turnover of the company and, where it has to intersect with variable costs is the balance point of the company. From there each production, pay dividends and, behind him, will be lost. In this graph, the company needs to produce 15 units that receive 900 (units of money), which will reach the point of balance, to cover all expenses.

Formula for calculating the equilibrium of a company

There are two ways to calculate the equilibrium point: in units or quantity of sales. Using the example of the graph are:

* Pe = Breakeven
* U = Units, 15
* Pu = Price of the unit, 60
* UVC = variable cost per unit, 20
* Cf = fixed cost, 600

Applying the formula: Pe = Fixed costs / margin per unit we have: Pe = 600: (60-20) = 15 units.

And if we know the amount to be billed to get the balance point is: It is estimated margin per unit: Margin = Pu-Cvu/Pu would be: Margin = 60-20:60 = 0.666. 0.666 words, the price is the company’s margin per unit. And the formula: Pe = 600:0,666 = 900. Amount needed to reach equilibrium.

The importance of knowing the equilibrium point

* Let you know, before starting the activity, The minimum bill and have the necessary units to be produced and sold, to balance the costs.
* Knowing the company’s ability to achieve these figures or those of market to place.
* Reduce costs to facilitate getting to the point of equilibrium in the shortest space of time.

In short, the break even point tells the employer since the time your business is generating profits. If the costs are calculated monthly, you know the units that will produce and sell each month to balance expenditures with revenues.

And also tell you if your company is worth or not, depending on the time required to reach the break even point. But if multiple consecutive months in those who did not get the point of equilibrium, the solution will reduce costs and, unfortunately, dismiss staff. All to avoid the occurrence of the failure of your business.