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What is Break Even? Which you hear from every person you meet
Break-even is a point at which you have the profits for a particular year where it is equal or above the amount which you had invested in your company when you started it.
This is the most abused term, you will hear every start up saying, I will have break even by 2nd year 3rd quarter this looks good when you say but have you understood what it actually means when investor looks at it.
Break-even are of two types one Break Even on recurring i.e. the point where your revenue generated will take care of the expenses being incurred at any given month from the point of break-even happening month. In more simple terms the month where your revenue will be equal to your expenditure for the month is called as break even on recurring, but this is not the point where you will start recovering the amount you had invested when you started.
Break Even on investment, i.e. the point where for a given year your profits will be good enough to cover the amount you invested on your company and that year is what will be called as break even on investment. This is more important as you need to understand with complete clarity as when your investment can be taken back.
Though the invested amount cannot be pulled in actual terms but it gives indication as in which year your profits will be more or equal to the amount you had invested. This is bench mark to show the investor at this year is where you will have enough profits which will be equal or more that the amount invested in your company.
It’s just like people saying climate yesterday was good but today climate is very dull, they forget one point that climate is done on average of 50 years and not on day to day basis, but it is weather which done on average of 24hrs.