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Will your business be profitable?


RESOURCE CENTRE

Work out your break-even point with this Business Break-Even Calculator

Conduct a cash flow forecast with this Business Cash-Flow Calculator

Survive start-up and make sure you have enough cash to carry you until your business is profitable.
Check out this Business Burn-Out Calculator

Before you start spending money or applying for finance, there’s an essential step you need to take first – finding out whether you can break even!

Is your idea financially feasible? Work out the break-even point first.

You’ve got a great idea for a business. You’ve done your due diligence in a test marketplace and have satisfied yourself that there’s a demand for your product or service. You’ve even got potential customers lined up – and your family and friends think you’re on to a winner!

All of the above is important. But before you start spending money or applying for finance, there’s one more essential step you need to take first – finding out whether you can break even. If you can’t, there won’t be any profit… and there won’t be any business.

Fortunately there’s a quick and easy way to find out if your idea is financially feasible, and it’s called a break-even analysis. Simply put, it’s a way to work out if you’ll generate enough revenue in sales to cover all your costs, without first showing a profit. That’s your break-even point, and you need to identify it before you do anything else.

A basic example

For the purposes of demonstration, we’ll invent a business that’s selling coffee tables.

Remember, this is break-even only. It will pay your required salary, but there’s no extra profit margin in there to grow your business.

Cash flow forecast

This is a really useful way to check your calculations, because it makes you think more carefully about fixed and variable costs. It’ll also give you an idea of how long your business will take to break even, which is important. Hardly any businesses make money straight out of the starting gate, so you need to have the necessary funds on hand to keep the business going until it breaks even.

You may need contingency plans in case you fail to break even over your planned timeframe. Increase prices, lower overheads, change your product mix, or lower your cost of goods sold. For example, you could shop around to find a reduced rate on the raw materials you need.

HELPFUL TOOLS

Work out your break-even point with this Business Break-Even Calculator

Conduct a cash flow forecast with this Business Cash-Flow Calculator

Survive start-up and make sure you have enough cash to carry you until your business is profitable.
Check out this Business Burn-Out Calculator

Additional resources

At Meridian, we’re big on small business. Learn about our small business banking solutions.

Talk to one of our Small Business Advisors. They’ll take the time to get to know you and your business, and can help tailor financial solutions that fit your needs.

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