When Will your New Business Start Making a Profit?
You often hear of businesses having cash-flow problems. Put simply, when the cash going out exceeds the cash coming in, the money runs out!
When you’re starting a new business, it’s unlikely you’ll have an income or positive cash flow for a while until the business starts to get established.
During this time, however, you are still going to have expenses: normal living expenses plus expenses to run the business, the car, service loans, pay for advertising, etc.
This is when you need to have enough funds put aside to carry you through until your income exceeds expenses. Obviously, you need to keep expenses to a minimum during this period; otherwise you could run out of money very quickly.
Your Business Plan should include a schedule or timeframe of when you expect your business to become profitable. You should expect to start making at least some small amounts of income soon after commencing your business.
You should also create a Cash Flow Forecast that shows the income you expect and when you expect to receive it, plus the expenses you expect to pay and when you need to pay them. This is not only useful for your business planning, it will also be required if you apply for a business loan.
To create a simple Cash Flow Forecast, record the following information on a computer spreadsheet, or a calendar or diary:
- the amount of money you have on the day the business starts
- the income you expect to receive, and the dates on which you expect to receive it
- the expenses you expect to pay, and the dates on which payments are due
- your running account balance, calculated after each entry
This will give you an idea of how long you can keep paying your expenses until you start making a profit (or run out of money). It can also serve as a reality check for you regarding the viability of your business idea!
Many new start-up owners are so confident that their business is going to be successful, they commit to spending unnecessarily large amounts on offices, office equipment, and other overheads.
If you don’t have a large cash reserve, you NEED to think of creative ways to market, manage, and grow your business.
For example, you can take advantage of “virtual” office services to receive all of the benefits of the service while paying a fraction of the price. No need to budget for a full-time receptionist when you can hire a virtual one starting from just $29 a month. And no need to pay for a fax machine, line rental, toner and paper when virtual fax services start at just $12 a month. Using virtual services allows you to present a professional appearance to customers, while saving money (and often time) that is better spent on your core business.
By taking advantage of the latest technology and business services that are available these days, it is relatively easy to start your business part-time while working your normal job. Many successful businesses have started this way.
Once your new business develops a regular clientele and income, you’ll soon have the confidence and cash flow to give up your regular job and work at your business full time.
Find out more
To find out more about virtual office services that can help to save you time and money, visit our web site at www.alltel.com.au or phone us on 1300 ALLTEL (1300 255 835).