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Break-even is the most vital part of a business plan for a new enterprise. Do you agree with this statement? Justify your view.

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Introduction

'Break-even is the most vital part of a business plan for a new enterprise.' Do you agree with this statement? Justify your view. Support for the statement: ? Break-even analysis provides a very clear, understandable projection of the output and sales that will be necessary for the business to be profitable. This is vital when making decisions about whether to start, or how to structure a new enterprise. ? Break-even analysis is simple to understand which may make it especially useful for small or new enterprises which are not yet able to employ more sophisticated techniques. ...read more.

Middle

New businesses (particularly those which are quite different from their closest competitors) may have trouble finding suitable data upon which to base their calculations, greatly reducing the value of the break-even analysis. ? The model simplifies the realities of the market, failing to take into account the fact that firms may benefit from bulk buying inputs; that the firm may not sell all its output; or that it may not sell all its output at a single price. 'Break-even analysis is of limited value to a start-up business because it ignores the market.' ...read more.

Conclusion

For example: - It cannot determine the actual sales of a product. Sales data is speculative. The analysis also works on the assumption that all output is sold, and that there will be no fluctuations in demand. - It does not take into account variations in the price of inputs, such as discounts through bulk buying. - It does not take into account variations in the price of the product, such as through discounting. ? The value of break-even analysis may be limited when used in isolation, however, as one of a number of factors - including market research to indicate possible demand - it can help to create an overall picture of the market which can be of enormous value. ...read more.

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