Everyone with business startups wishes they had a crystal ball so they’d know when to expect problems, and when to expect profit. Sadly, it’s a bit like asking after the length of string. It all depends on the work you put it, the state of the market, and good ol’ fashioned luck. The journey is a bit different for everyone.
That said, it’s good to have a rough timeline for when your small business should start seeing a return. It’ll keep you focused and give you something to aim for.
The magic number three
Standard advice says that a startup business typically takes three years to start showing a profit. Don’t be disheartened though, some business miss the three year marker, and some hit it early.
Three years is a realistic goal profit goal for most startups, but a detailed business plan will help tailor this to particular circumstances. It will partly depend on the source of startup funding and the repayment terms.
The point of break-even in business startups
This is the ‘take-a-deep-breath’ moment where the business income starts to match the expenses. Oh happy equilibrium.
When you’re eager to really rev things up, it’s too easy to overlook the break even point as a mark of success. Enjoy it for the significant milestone which it is; some start-ups don’t get there.
Ramen noodles are tasty, and they’re cheap. This point of startup profitability describes when the business is making enough money to cover the living costs of its founder(s), as long as the living costs are not lavish.
Otherwise known as ‘the big time’ – or close enough anyway. This is when you and any potential investors would most probably deem the business truly profitable. It’s the stage at which you are making enough money to start paying off start-up debts, allow yourself a decent salary and still have some cash left to play with in the bank.
Quick tips for profitability in startups
- Organise a strong marketing strategy to retain existing customers and attract new business.
- Don’t forget to follow up on your leads and make the most of potential.
- Chase late payments and stay on top of your invoices.
- Think of appropriate upsells. These add value to the customer, and to the scale of the order. For example, if you sell running tops, consider energy gels as an option at the checkout; online or in-person.
- Keep your money for the essentials, and only commit to things when you can afford them long term. Rent rather than buying, freelancers for short term projects, and so on