Cash break-even point
In one sentenceThe sales volume that covers cash expenses only, after excluding non-cash expenses such as depreciation, at which cash inflows equal outflows.
Simply put
The ordinary break-even point includes depreciation, an expense that does not go out as cash every month. That is why the cash break-even point is lower: it is the level at which you do not lose cash, even if an accounting loss appears.
It helps you in difficult months: if your sales are between the two points, you are making an accounting loss but are not yet draining your cash. Do not forget financing installments if there are any; they go out as cash even though they are not an expense.
Worked example
A restaurant's monthly fixed costs are 60,000 SAR, of which 10,000 SAR is depreciation, and its contribution margin ratio is 40% of sales.
Cash fixed costs60,000 − 10,000 = 50,000 SAR
Accounting break-even point60,000 ÷ 40% = 150,000 SAR
Cash break-even point = 50,000 ÷ 40%125,000 SAR in monthly sales
Formula: (Fixed costs − non-cash expenses) ÷ contribution margin ratio
Don't confuse it with
Break-even pointIt includes all fixed costs, including depreciation, so it gives the accounting profit threshold, not the cash threshold.