There is no point in finding the breakeven point using the payback period of the company. The payback period of a business refers to the number of periods required to pay off an initial investment with positive net income, while the breakeven point of a business refers to the specific period in which its income will equal its costs. totals and your net income will be zero.
The point of balance
The breakeven point of a company can be defined as the accounting period that generates enough income to cover all the expenses of a company for that accounting period.
If, for example, a company has total monthly expenses before any taxes of $ 100, that company’s breakeven point would be the month that its total income equals exactly $ 100. By definition, the company would have no net income, and it would literally break even for that accounting period.
A company’s breakeven point can be found either by the exact volume of units that need to be sold to generate sufficient income to cover its total expenses, or by dividing the company’s total fixed expenses by its contribution margin.
The payback period
The payback period of a business, on the other hand, is not concerned with a specific accounting period and instead focuses on the number of accounting periods required to pay off an initial investment. This makes it difficult to use a company’s payback period to calculate or find its breakeven point.
If, for example, a startup company takes $ 100 in investments, the payback period would be the number of accounting periods needed to pay off that initial $ 100 with net income. So if the same company makes $ 10 a year, it would take 10 years to pay off the initial investment, assuming 100% of its net income goes towards repayment.
Therefore, it would not make sense to use the payback period to find a company’s breakeven point, since the two measure things separately.
