There a huge number of benefits to starting your own business. Of course, there’s the thrill of being your own boss. You get to set your own hours, chart your own course, and reap the full benefit of your own success.
Yes, it can be a pretty good life, as many satisfied small business owners across the country can attest to. But it also requires overcoming a significant number of challenges as well. While it may be fulfilling work, it doesn’t mean you’ll always be able to turn a significant profit.
Small business profitability is important to get familiar with if you think you’re about to head down that road yourself. What do you need to know about funding and making money off a small business? Read on and we’ll walk you through the basics.
1. Not All Businesses Make Money
Many people start their own business because they are sick of existing under the foot of another person or enterprise. They want to go out on their own and make their own mark on the world.
There is a lot to admire about this kind of mindset, but we need to acknowledge the important reality upfront: this is going to put a damper on the rest of your life for some time. Yes, you’re creating an opportunity for yourself, but it is going to come at the initial cost of the loss of a lot of stability.
The bottom line is that most small businesses do not turn a profit each year. Only 40% of businesses turn a profit and only about half make it through their first four years of businesses and stick around.
Small business owners face so many challenges to keep their new enterprises up and running.
The odds are not exactly stacked in your favor, we’re sorry to say. This is perfectly fine to accept, life is not about making money, but it is important to understand this reality as you come up against it.
If you’re about to quit your job and go off on your own, do so with the knowledge that much of your day-to-day life is going to change.
2. Where to Start a Small Business
Where are people flocking to with their ideas to start a small-scale business? Cities remain the go-to place to try and get an idea up and running, though it doesn’t take heading to Manhattan or Silicon Valley anymore to make something a success.
In fact, the most popular place to go to try and launch a new company right now is Austin, Texas. Thousands are flooding into the city looking to take advantage of what Texas and the young, hip population in Austin have to offer.
Other cities that are worth looking into if you’re up for a move? Denver, D.C., Charlotte, Asheville, and Nashville all have a lot of promise. Of course, depending on your own small business goals, you might not need to move cities at all, you might be able to get set up right where you’re at.
However, if you’re looking to put your feet down somewhere where the soil is rich and there’s a lot of activity, these locations are well worth looking into.
3. Budgeting For a Small Business
How much money you’ll need to get your business started is going to depend on the kind of work you’re doing in general. It’s going to cost a lot more money to open a dine-in movie theater than it is to have a small shop that sells trinkets, for example.
It’s important to get familiar with your potential costs as early in the process as possible. List them all out and do your very best not to miss anything.
Separate your startup costs from your operational costs — these are costs that you’ll need to be paying each month to keep your business running as it should. Add these numbers together and you’ll be looking at how much money you’ll need to make in your first month to get into profitability.
Too high a number? That’s to be expected, very few small businesses come into profitability in their very first month. However, look at those monthly overhead costs, does it feel realistic to be able to make a significant amount more than that in profit per month?
If the answer is no, you might have a long road ahead of you. It will take implementing some key business strategies and practices to get over the hump of debt.
4. Finding Funds
Small businesses get initial funding in many different ways. If you’re very lucky, you’ll have an investor who wants to help you out based on the strength of your idea and your business plan. They’ll put up some of the money and you’ll be well on your way.
However, this isn’t the case for a lot of business owners, especially those without past success. The majority of small business owners will need to take out a loan from the bank in order to get up and running.
That means on top of all the other costs, you’ll need to worry about interest and your ability to pay the bank back on time. This will impact your overall path to profitability as well, so don’t overlook this detail.
Understanding Small Business Profitability
If you’re looking to start your own company, there’s a lot you’ll want to get familiar with as it pertains to small business profitability. There are many obstacles to overcome in this kind of work, but on the other side of that work awaits a great sense of pride of fulfillment. You just need to know how to get there.
Need help in making your business a success? Contact us anytime for assistance and advice.