Importance of the Balance of the company

The balance of a company It is an extremely important economic concept in the business world; and it is that thanks to this point, or rather, when a company reaches this point, we can say that its activity is profitable.

Thus, the equilibrium of a firm implies that your sales are able to cover fixed costs and variable costs, something essential if we want our business to continue.
At the break-even point, no benefits are observed, thus, it is usually a stage that is really longed for by all those who start a business; and it is that reaching the break-even point means that we are on the right track and that if we continue at this rate, we will surely begin to perceive benefits soon.

Conversely, if we fail to break even, it means that our costs, both fixed and variable, are not being covered. So we are losing money for this business bet. if this state lengthens in the time, the employer should consider the option of closing it; and it is that it is very dangerous to be constantly making capital contributions to be able to refloat your business.

When starting a business, all entrepreneurs will know that it is very difficult to perceive benefits from minute one. Thus, the first thing that is longed for is to reach the equilibrium of a company. At this point it is necessary to clarify what are fixed costs and variable costs, so that we can understand the importance of covering them with sales.

Fixed costs are costs that must be paid regardless of whether the business operates. Thus, a rent, expenses such as electricity, water or telephony, as well as the personnel that we have on our payroll, will be fixed expenses that we will have to face every month. Likewise, there are also variable costs that we will have to pay every month. These variable costs could be, for example, the raw materials with which we work. If one month we produce more, obviously we will spend more.

With this, we can understand that the equilibrium point is extremely essential, because if it is not reached, we will not be able to cover the costs of our activity.

This breakeven point is important even when we want to sell a company. For example, imagine that there is a businessman in debt who needs to sell his company to pay off his debts. The break-even point will determine if the business can actually function or, on the contrary, we are facing a business model completely finished that must be closed and whose value, therefore, is not too much.