Starting a business is risky. That’s why many people prefer working for an employer. At the end of the day, if you want it to survive, let alone grow, your business needs to be profitable.
While there’s never any guarantee of how something will go, there are steps you can take to figure out if your business will be able to make money and give you the confidence to keep moving forward through the highs and lows of entrepreneurship.
Addressing these six steps will help you set yourself up for a profitable business.
1. Get to know your market and industry
First and foremost, you need to understand the industry you’re working in. Does the world actually need your business? You need to think about your target market, sales potential and possible risks so you can adequately plan and budget for your business.
Address questions including:
- Is there actually demand for the product or service you’re offering?
- How saturated is your market?
- What opportunities exist for your business?
- What external factors could impact customers and the market? Do you run a seasonal business or are there other considerations that could impact cash flow at certain times of the year?
- What is the typical profit margin in this industry?
- How much do people typically charge for these products/services?
Addressing these questions will help you ensure your business actually stands out and adds value.
You need to understand who would want to spend money on your business – and why. This will give you the confidence to say, yes, my business idea adds value to the world.
2. Learn the basics of business finance
Make sure you understand the basics of business finance terms and what they mean. Some key terms you’ll need to know and use as a business owner include:
- Assets, revenue and liabilities
- Profit margin
- Gross profit
- Net profit
- Cash flow statement
- Profit and loss statement
- Balance sheet
A quick Google search for “essential business terms” can help you define more terms. Understanding the basics of how business finance works will help set you up to start making money.
3. Create a business (and financial) plan
A business plan will be your guide to profit. It summarizes the mission, goals and financial objectives of your business while providing details on how you will accomplish it in terms of marketing, execution and funding.
It forces you to establish specific objectives and create an actionable timeline to start making money. It also helps you assess potential risks and how to mitigate them.
As part of the business plan, you’ll also want to create a financial plan to help you map out how your business will make money by addressing:
- What are your start-up and operating costs?
- How will you generate revenue?
- How much will you charge?
- What’s your profit margin?
Get an overview of how to write a business plan by reading Business Planning 101. Our free Business Viability Kit includes a one-page business plan template, goal-setting worksheets, and various calculators to help you crunch the numbers.
4. Know how much you need to make to breakeven
The breakeven point is how much money you need to make to actually profit. While someone might buy something from your company, you might not actually make money for a while if you have more expenses than cash coming in. To make money, you need to ensure your breakeven point is lower than your expected revenue.
This will be impacted by how much you charge, how much revenue you generate and your fixed costs. The Business Viability Kit contains a break-even and pricing calculator to help you find yours.
Understanding your breakeven point and keeping it low will help you generate profits more quickly.
5. Keep costs low by maximizing free and low-cost startup resources
Starting a business usually involves some kind of investment. Luckily, there are countless resources out there to help new entrepreneurs get their footing while keeping costs low.
Make the most of the resources around you to help minimize risk and increase your profitability faster:
- Funding grants and government programs
- Mobilize your professional network
- Entrepreneur/start-up hubs (find your local Ontario Small Business Centre here)
- Our resources and tools
The start-up cost calculator in the Business Viability Kit will also help you determine and budget upfront costs to see how much funding you’ll need.
6. Prepare for things to go wrong
Ultimately it is a risk. Thousands of businesses fail every year. That doesn’t mean yours will and that you shouldn’t try. It just means you need to be ready. Proper business planning will help you mitigate the risk and increase your likelihood of growing a profitable business.
Being prepared will also help you reduce potential financial losses if things go wrong.
Understanding market needs, keeping costs low, and having a nimble plan in place will help you start out as a new business and empower you to make money and grow.
Get your free Business Viability Kit here.
Read Business Planning 101 here.
