Every company goes into business to make money. That is the real bottom line. However, many people do not have a realistic goal of when the business will actually start to make a profit.
If you have been smart you will have prepared a break-even analysis. This analysis will show in detail, how much money you will make on each sale or service. With this information you can determine how many sales you have to make each month to break even. This study may or may not include paying off your initial investment or your loans. Many businesses actually do both, especially if they have investors who want to know when the company will be completely out of debt.
Although knowing when a company will be free and clear is important, it is not the primary focus of a break-even analysis. The primary focus of the document is to determine the point when you are going to be able to make all of your payments and start earning money for yourself.
As a general rule of thumb, do not expect a profit until the beginning of the third year. This rule is obviously a very vague one, since many companies have virtually no overhead whereas others may require millions for start-up. Nonetheless, keep this in mind and make certain that you are prepared.
Have an emergency cash reserve. This money is not for regular monthly bills, but rather money that you might require for unexpected emergencies. For instance, if you have a delivery truck, you might need to replace the transmission. This major expense will not only cost a lot of cash money, it could cost you a lot in the way of clients and jobs if left unrepaired.
Have a large savings account. Optimally, it should have enough cash to keep you afloat for two years. This is money that you can use to pay your personal bills until you can afford to take a salary from the company.
Keep your personal accounts and business accounts separate. Most businesses which do earn money in the beginning often use the profit to re-invest into the company. It might be used to pay for additional advertising, expansion or any of hundreds of different things.
If you really want to be successful, take the time to outline your breakeven point. You should know exactly what you need to do to ensure that your company will start earning you money as quickly as possible.