- The business may suddenly be confronted with extremely strong price
competition, which could drive prices down and affect profits. - It is a good idea to get in the habit of testing and monitoring the
performance of the business on, at least, a quarterly basis.
Risk assessment and break-even analysis should be part of any business plan along
with the development of contingency plans in case of 'the worst-case scenario'
occurring.
Uses of the break-even analysis
The break-even analysis can to be used to:
- Evaluate possible prices of the various product lines
- Monitor the viability of existing business segments
- Assess the viability of pursuing new market segments
- Assess the relative return on investment of various existing market
segments - Test the effect of changing market conditions on business segments
- Test the viability of any expansion plans such as adding new equipment or
entering a new market - Assess after adding additional production equipment
- Assess after increasing staff for any reason
- Assess if there are sudden increases in fees, licences, or taxes from
government or regulatory agencies - Assess after—increasing marketing costs to promote an offering.
- Assess after—increasing marketing costs to service a new market.