Breakeven Analysis

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来自 University of Pennsylvania 的课程

Entrepreneurship 4: Financing and Profitability

640 个评分

University of Pennsylvania

Entrepreneurship 4: Financing and Profitability

640 个评分

课程 4（共 5 门，Specialization Entrepreneurship）

Start-ups can benefit from a wide variety of financing options on the path to profitability, but how do you know which one to choose? This course explores different financing models, including bootstrapping, organic growth, debt and risk capital, and also provides a clear overview of equity financing including the key types of investors: angels, venture capital, and crowdfunding. You’ll learn about terms, and term sheets, exit modes and what exit strategy might be best for you. By the end of this course, you’ll have an understanding of what success looks like and how it can be financed. You’ll also be ready for the capstone project, in which you will get feedback on your own pitch deck, and may even be selected to pitch to investors from venture capital firms.

从本节课中

Private and Public Financing, and Calculating Breakeven

This module was designed to give you a closer look at the advantages and disadvantages of both public and private financing, and to provide you with some simple but powerful tools for estimating how much capital you will need. You'll learn about the added benefits of working with venture capital firms, when and why to consider debt financing, and the latest trends in crowdfunding. You'll also learn to calculate how much money you are losing each month (the burn rate), and when you can expect to become self-sustaining (the breakeven point). By the end of this module, you'll be able to perform your own breakeven analysis so you can make a more informed choice about the best source of financing for you company.

Venture Capital and the Financing of Innovation18:05

Financing: Crowdfunding21:22

Debt Financing13:08

Breakeven Analysis8:19

与讲师见面

Kartik Hosanagar
Professor
Wharton School
Lori Rosenkopf
Vice Dean and Director, Wharton Undergraduate Division
Simon and Midge Palley Professor of Management
David Hsu
Richard A. Sapp Professor of Management
The Wharton School
Ethan Mollick
Associate Professor
Associate Professor of Management- Wharton School
David Bell
Xinmei Zhang and Yongge Dai Professor, Professor of Marketing
Marketing
Karl T. Ulrich
Vice Dean of Entrepreneurship and Innovation
The Wharton School

I'm Karl Ulrich, I'm a Professor at the Wharton School.

This session is on breakeven analysis.

There are really two distinct uses of the term breakeven in the context of

entrepreneurship.

The first, you might call breakeven time.

It's also sometimes called payback time or payback period.

Essentially, it's how much calendar time would be required for

a lump sum investment to be recovered from positive cash flow and

I'll give you an example here in a minute.

The second use of the term is really breakeven quantity and

this refers to how many units, transactions, quantity of product, orders,

customers must we experience per unit time in order to cover our fixed costs?

I'll go through both of these with some examples.

The second idea of breakeven quantity

is also sometimes referred to by the strange term, covering the nut.

And that means, the nut is a term that refers to what are my monthly fixed

expenses and how much do I have to sell to cover the nut?

That is, to recover or pay for my monthly fixed expenses.

First, breakeven time or payback time or

payback period and let me just give you an example.

Let's imagine that you're considering converting

all of your delivery trucks from gasoline to compressed natural gas.

Prices for compressed natural gas are quite low right now, much lower even,

than gasoline and so,

if you convert to this alternative fuel you can save monthly operating expenses.

Let's imagine that buying a truck costs $40,000 U.S. dollars and

let's imagine you save $1,000 a month in fuel costs by converting to CNG or

compressed natural gas.

Then put simply, the payback is 40 months.

That's just 40,000 divided by 1,000 per month saving, so

the breakeven time is 40 months, or the payback period is 40 months.

Now let me just say, this is most commonly used in association with a lump sum,

single investment that has some future savings associated with it,

it's actually not very commonly used in other parts of entrepreneurship.

You wouldn't normally see this in the context of financing or discussion

with an investor, it would be more used in association with a lump sum investment.

On the other hand, this notion of breakeven quantity

is commonly used in entrepreneurship, and let me start by giving an example.

I'm a founder and investor in a company called Belle-V Kitchen,

and we make a quite lovely bottle opener shown here.

Actually, I have one with me.

Belle-V Kitchen makes a bottle opener shown here.

I want to just consider the basic question of,

how many of these would we have to sell a month in order to breakeven?

I want to start with the definition we've used in this course for

financial sustainability for a company that sells things.

The basic condition that's required for financial sustainability is that

the quantity sold times the difference between the price and

the cost of each unit has to exceed the fixed costs of operating the business.

Put simply, P minus C, or price minus cost is the gross margin, that's how

much you make on each unit of product and the quantity sold is the quantity sold.

The quantity sold times your profit per unit,

that must exceed the fixed cost of operating the business.

If you can achieve that, then you can achieve financial sustainability for

the business.

In setting breakeven quantity, we simply turn that around and ask the question,

how many units would be required for us to cover our fixed cost, F?

That can be expressed by the expression, quantity Q,

breakeven quantity Q is equal to the fixed cost per unit period F

divided by the profit margin per unit sold, or P minus C.

Let me give you a numerical example to make that clear.

Let's imagine that it costs us $300,000 per year to operate the business.

These are the costs that don't vary with the quantity sold,

this is things like rent, advertising,

salaries we pay to the bookkeeper and to the marketing person.

Let's say that's $300,000 per year and

let's imagine that we sell these at a price of $25 and

that they cost us $13.44 to make.

That our breakeven quantity would be 300,000 divided by

the difference between $25, our price, and 13.44, our cost.

If you do that arithmetic, it comes out to 25,952 units per year or

more typically, it's expressed monthly, so it'd be 2,163 units per month.

The breakeven analysis simply says,

we have to sell a little bit more than 2,000 units per month,

about 2,200 units per month in order to cover the nut, in order to breakeven.

Now if you don't sell a product and

instead sell a service, then with recurring revenues and

recurring customers, then you think about it just a little bit differently.

I'm also an investor in a company called Gridium that sells software to companies

that manage commercial office buildings and they sell it on a subscription basis.

They have a couple of different subscription plans but

some of them cost $79 a month, some of them cost $150 per month.

It's essentially the same analysis but

instead of asking how many transactions do we need to have per month,

you ask how many customers do we have to have in our system,

on our system, subscribing to our service to cover the fixed cost?

So, a very similar kind of analysis,

I don't think you'll have any trouble doing it.

But I do want to point out that it's a little bit different for recurring

services like you see in software service businesses or in other kinds of services.

Now, there are some issues in breakeven analysis.

It's fairly useful as a way to just test your intuition

of how much business would we really have to do to sustain

a company of the size we're imagining this business to be?

It's good for calibrating your intuition around the feasibility of a new business

but it does assume a fixed level of spending.

It assumes that F, in fact, is fixed but those costs aren't really fixed.

Those costs are the results of a managerial decision

based on how big you think the company can be, how much resource you think you're

going to need over the coming months in order to support that business.

The breakeven calculations are probably best framed as, if we were

this size of an organization, if we made this kind of commitment to rent and to

payroll and to advertising, how many units would we have to sell to cover the nut?

How many units would we have to sell to breakeven, to cover those fixed costs?

It's sometimes useful to do this analysis for

what you can imagine to be the minimum efficient scale for the business.

What's the smallest we can imagine this business being at and

still running itself, still being self-sufficient?

Look at that set of fixed costs and

answer the question, how many units would we have to sell,

how many customers would we have to have to sustain a business of that size?

And that can be a good test as to the basic feasibility of the business model

that you're envisioning.

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