How long does it take for most new businesses to make a profit?

Written by dirk huds Google
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How long does it take for most new businesses to make a profit?
A business usually pays its taxes from its profits. (Hemera Technologies/AbleStock.com/Getty Images)

There is no definitive answer for how long it will take a new business to make a profit. There are so many variables that change from one company to the next. However, astute financial management, cost analysis and business planning can help to give a business owner a better idea of how long it will be before his company moves from debt to profit.

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Start-up

"Startup Nation" points out that the time it takes to become profitable, depends on the initial costs and the market for your business. For instance, if you are in a business that does not require many initial overheads, you may turn a profit in six months. However, if you need to invest a considerable sum in stock, equipment and similar up-font items, it may take much longer to become profitable. Entrepreneur magazine suggests it may be as much as two years before you have the excess capital to invest in employees or begin expansion.

Initial

The initial capital you need must take into account the costs you will incur setting up and running your business until it reaches profitability. As mentioned, these costs may be relatively small -- remote online services is an example of a business with low initial overheads -- or large, such as manufacturing a product. You will also need capital to pay yourself living costs and any staff wages while you get the business up and running.

Securing finance

It is likely that much of your capital will come from several sources. Personal savings, investment from friends, family and other contacts, as well as, possibly, banks. If you do not have a provable background in running a profitable business, a bank will need to be convinced that you are able to do so. You will need to present a cash flow analysis of expected profitability.

Cash flow analysis

You cash flow analysis measures your outgoings against your income. In the initial stages of your business, the former will exceed the latter, but with the correct research into the marketplace and a thorough analysis of your costs and receipts, you can predict when you may turn a profit.

Costs and income

There are two types of cost -- fixed and variable. Fixed costs include rent and insurance. Variable costs include the money paid for materials and labour costs. They are variable as they can change quickly. A shortfall in supply may push the cost of materials up, while this may mean you have to cut staff numbers to reduce your labour costs. Your income is the money you receive for your goods or services. If the latter exceeds the former -- after paying tax on the earnings -- you have achieved profitability.

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