How are you going to cover the cost of starting this business? Will you need a loan, or do you have the funds for your startup? Are you planning to leave your current job or focusing full time on the new business? Do you have savings to support you and your family until you make a profit? How much will your startup cost be? It is a good idea to overestimate the amount of startup capital you need. Many businesses fail because they run out of money before turning a profit. It can be some time before the business begins to bring in a profit to sustain your revenue. A break-even analysis is an essential element of financial planning that will help you determine when your business will be profitable . Break Even Analysis in economics, business, and cost accounting refers to the point in which total cost and total revenue are equal. A break even point analysis is used to determine the number of units or dollars of revenue needed to cover total costs fixed and variable. The formula for breakeven analysis is as follows,,,
Break Even Quantity = Fixed Costs / (Sales Price per Unit – Variable Cost Per Unit)
- Fixed Costs are costs that do not change with varying output (e.g., salary, rent, building machinery).
- Sales Price per Unit is the selling price (unit selling price) per unit.
- Variable Cost per Unit is the variable costs incurred to create a unit.
It is also helpful to note that sales price per unit minus variable cost per unit is the contribution margin per unit. For example, if a skillet selling price is $100 and its variable costs are $5 to make the skillet, $95 is the contribution margin per unit and contributes to offsetting the fixed costs.
The 3 Most Common Reasons to Conduct a Break Even Analysis
The analysis will help you understand where your profits come from so you can set production goals accordingly
- Determine Profitability – How much revenue do I need to cover all expenses
- Pricing – Consider how much it costs to create the product or service. Such as, fixed cost and variable cost, plus physical goods cost, and labor cost.
- Analyze the Data – What goods or services need to be sold to be profitable? Think about how you can reduce the fixed cost, and the variable cost and how you can improve sales.
Be Aware of Your Expenses
Monitor your business expenses to make sure you are staying on track. Never spend money on unnecessary things. If you only have two employees it is not necessary to spend a large amount on office space. Spend as little as possible on office equipment to start your business. As the company grows you can then rent high end printers and fancy desks. Luxuries can come when you are established.
Guide to Startup Financing
Business startup capital for your business can come from various means.
- Business Startup Loans – A business startup loan helps you to start a business because a startup requires an amount of money. It also helps to meet the financial needs of a new business, and its income can go for buying things such as the purchase of equipment, supplies, inventory, and real estate.
- Business Credit Cards – Not having a business credit history just means you must personally guarantee your new business credit cards, which, in turn, means you can leverage your personal credit history to secure startup business funding through startup business credit cards. If you lack personal credit history, or your personal credit history is less-than-stellar, this might spell a challenge for you as you set out to secure the best business credit cards for new business. Consider building a personal credit history with a secured credit card before setting off on your search for startup business funding.
- Crowdfunding – Essentially, a startup develops a well-thought-out business plan prototype of their idea or service. They then pitch these ideas to the public through an online crowdfunding portal. The ideas are funded by crowds of people who are willing to invest in exchange for an exclusive gift, pre-orders, or just because they want to help. In recent years, some crowdfunding platforms (because of changes in the law) allow a business owner to offer equity in exchange for investment as well.
- SBA Loans – The Small Business Administration (SBA) offers loan guarantee programs available through participating banks and other financial institutions. Some advantages of an SBA loan could include attractive payment terms, better repayment options, and smaller down payment when compared to other traditional startup business funding options – all of which are designed to lead to better cash flow for a startup. There are some business start-up loans that help you to establish your own business.
- Business Grants – A business grant is funds awarded to businesses in need. Unlike loans, grants don’t have to be paid off. The money is not being borrowed. There is no interest attached. Grants are GIVEN to businesses with no expectation of return. Sounds too good to be true? Truthfully, obtaining small business funding in the form of a small business grant can be a lot of work, the funds received from the grant might be all the help your company needs in order to succeed. Small business grants can come from the federal government, state government, local government, and corporations
Choosing a Bank for Your Startup Business
Choosing a bank for your business requires more thought and planning than simply walking into your personal bank and opening up a second account. Your business banking needs will have different requirements than your personal banking, so taking the time to find the right business bank account is an important first step towards financial success. A suggestion is to choose a small community bank because they are in tune with local market conditions and will work with you on your overall business profile and character. The right bank for your business comes down to your needs. Jot down a needs list that you want to focus on from your bank and schedule meeting with a few small banks to find the best bank for your business.
Other Posts In This Series
- #1 How To Refine Your Ideas – Start A Small Business Series…
- #2 Write a Business Plan – Start A Small Business Series…
- #3 Assess Your Finances – Start A Small Business Series…
- #4 How To Choose The Best Legal Structure – Start A Small Business Series…
- #6 Purchasing The Correct Type of Business Insurance – Start A Small Business Series…
- #7 Build Your Team – Start A Small Business Series…
- #8 Choose Your Vendors – Start A Small Business Series…
- #9 Create A Marketing Plan – Start A Small Business Series…
- #10 Grow Your Business – Start A Small Business Series…
About Chanell Solace Coaching
Startup Business Coaching
Building a startup business is hard work so please don’t do it alone. It’s hard because building a startup takes new skills, knowledge, and resources at every stage. We partner with you to help navigate you through this exciting journey. Our coaches and experts can guide you through the process with empathy and expertise.
> Learn More
Chanell has a great story and many experiences that will help you in your journey. Chanell helps you be open to new ideas and inspires you to make a positive change. Chanell knows that making incremental changes to your mindset, lifestyle and everyday actions will change your life. It changed her life and she can help change yours.
> Learn More