When you think about starting a business, one of your first thoughts should be whether or not your business will be successful and profitable. You may be able to find this out before you ever start by preparing a break-even analysis.
A break-even analysis will help you to understand how much revenue you need to bring to the table in order to make any profit. Knowing how much you have to make in sales before you break even is critical to the ultimate success of any business. You want to know that you can easily cover your expenses and provide for yourself/family.
Once you prepare a break-even analysis, you will be left with one of two possibilities:
- Your analysis shows that your break-even point is higher than you expected. You may either forgo the idea altogether or adjust your plan to lower costs wherever possible.
- Your analysis shows that you don’t need too much in sales revenue to break even and that you can proceed with your business plan. Next, you’ll want to make more calculations to ensure your business idea is financially sound before you start investing your hard earned cash. It’s a good idea to prepare a profit-and-loss forecast, a cash flow projection, and a start-up cost estimate.
Once you have your break even analysis, you are well on your way to developing a sound business plan. For more information about building a business, contact a business lawyer at 702.451.7077 today.