How to calculate the payback period ?

How to calculate the payback period ?
You will need:
  • Initial costs
  • Revenue
# 1

This issue is quite complex, but fundamental to the business plan of any project.To begin with, the payback period - a period of time, which will be held on the date of implementation of the project to life until the moment when all the costs of its implementation is fully repaid.Payback - this is the moment when the project will start to make a real profit over invested in his funds.The payback period is less, the better for the project and for its author, it also has a positive effect on the attractiveness of the project to investors.The payback period is, the more suspicions about the profitability of the project.

# 2

Calculate payback period - means to determine the point in time when all the expenses for the establishment and implementation of the project will be repaid when the entrepreneur will start to feel the benefit of your project.Sometimes it happens that the business plan unprofitable, disadvantageous, and if this project does n

ot pay for itself during its life cycle.This means that the initial costs for the project are not paid off, that is, the project has not justified itself, found consumers in the market place.The sad fact, but it has a place in the economic practice.If the project has not yet been introduced to the market, and the business plan is already showing quite a long payback period, the entrepreneur should think twice before implementing the project.

# 3

In order to calculate the payback period of the project, you need the original volume of investments in the development of the project divided by the average annual value of cash flows from the project.This is the simplest generalized formula for calculating the payback period of the project.But in each individual case has its own nuances and peculiarities.If monthly income is assumed different from the project, then this formula will not work.In this case, in order to obtain a more accurate result of the calculation, you need to go the other way.To begin to determine the value of the initial investment in the project, and then from that amount consistently deduct planned income each month.In the month in which the initial investment overlap income from the project, and will be payback time.

# 4

When planning a business occupies a pivotal position breakeven point.This is a point in which the revenue from the business is equal to the costs of its implementation.Then this point begins the profit from the sale of the business project.Following the break-even point - loss area, undesirable area entrepreneur.Break-even point is usually found with the help of the graph on which to build more direct: direct fixed costs, direct variable costs, direct general costs and direct sales.At the intersection of direct general costs and direct revenues is the break-even point.

# 5

Net income - this is the part of the profits of the enterprise, which remains at its disposal after the payment of all taxes, levies, duties, deductions to the state budget, etc.In other words, it is the profit which the company may dispose of as he wants.Of course, any entrepreneur interested in increasing net profit.But unfortunately, this is not always happening.Therefore, it is important to know the payback period of the project, how many months or years, the project will pay for itself, and whether it is beneficial to run it on the market.