An important common tool for business practices and financial safety is the break-even tool. Although it may seem like an application that may only be used by business students early on in their commerce career in order to understand corporate practices, the break-even tool is actually a significant concept which can cause many firms to realize what they are doing wrong or even some unnecessary costs they may have. For example, a company called McLaren had to withstand the same procedures. The exotic car company just recently entered the Formula 1 industry just over three years ago. Since their start-up, they had been incurring serious costs to an extent where they were losing money for a substantial period of time. However, according to an article on The Guardian, they made serious financial re-considerations which caused them to break even just towards the end of this calendar year. The author of the article, Angela Monaghan, stated that McLaren’s “Operating losses at the three-year-old business fell to £10.9m last year from £59.1m in 2011 and it expects to break even this year” (The Guardian 2013). Additionally, ever since the luxury automobile firm decided to cut costs and revolutionize their production methods, their demand has risen considerably: “Last year sales almost quadrupled to 1,587 cars from 400 in 2011, as the company benefited from the first full year of production of the McLaren 12C and the launch year of the 12C Spider” (The Guardian 2013). These immense rises in demand and decreases in costs are clear repercussions of the company’s use of the break-even tool. They realized that they must produce and sell a certain number of goods (A.K.A. luxury cars) in order to break even and did so based on their knowledge of the established demand for their product – they decided to build only “375 P1s, which cost £866,000 and can achieve 0-62mph in less than three seconds” (The Guardian 2013). Ultimately, McLarens proper use of microeconomic concepts along with the break-even tool caused them to not only break-even, but quadruple their sales in one year. The basic tools taught to students in Commerce 101 set the correct foundation for sustainable business practices and set the ground for successful careers in the future.
Works Cited:
Monaghan, Angela. “McLaren Drives down Losses and Expects to Break Even This Year.”The Guardian. Theguardian.com, 30 Sept. 2013. Web. 15 Nov. 2013. <http://www.theguardian.com/business/2013/sep/30/mclaren-losses-down-break-even>.
Article URL:
http://www.theguardian.com/business/2013/sep/30/mclaren-losses-down-break-even