One of the first, and most essential, steps to starting a business is figuring out how long it would take you to start making a profit, and if you have enough cash to keep you afloat until then. It’s not enough that you have passion and expertise or that all your friends think it’s a great idea. Before you starting spending all your money or applying for business financing, you need to know whether your business could make a profit.
Start exploring your profitability by finding your break-even point. Breaking even means that you generate enough revenue to cover the costs of running your business. Once you work out your break-even point, it’s easier to identify how long it would take for your business to make a profit, or how much breathing room you have when you encounter challenges before you start losing money.
Get started – try our Business Break-Even Calculator
Figure out cash flow
Calculating your cash flow is a great way to supplement your break-even analysis. By cataloging the cash coming in and going out of your business (fixed costs, variable costs, recurring costs, etc.) you get a better sense of your situation. You can experiment with the numbers to try to predict what would happen if you increased process, lowered overhead costs, changed up your inventory, suddenly had unexpected repair costs, etc. So not only does cash flow help you understand your break-even point when you’re starting up, but it can also help you plan for the future.