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The Profitability Hurdle

One measure of small business success: how long does it take to “break even” - and reach profitability?

The biggest hurdle that one faces when starting a small business is the profitability hurdle: the time it takes between opening for business and the day that the operation “breaks even.”

Typically, one spends (invests) money on inventory, marketing and advertising, rent and building utilities, and sometimes the salaries of employees before the business starts generating enough cash flow to cover those expenses. In a retail operation, one must cover the cost of purchasing, installing or constructing the walls, shelving, display area, etc., that make the store look the way it is supposed to look. Sometimes, reaching the “break even” point can take months or even years – depending on the type of business and the amount of investment it takes on a weekly basis to keep the operation going.

The “break-even” point is big milestone.

We have opened a retail store. As the accountant of our small business adventure, I had a number in mind – a goal – of exactly what sales target to aim for so that would know when the store reached that magic goal – self sufficiency. I hoped that it would not take more than a few months, as getting everything ready took most of the money that we had set aside from the tax refund.

The small town where the shop is located specializes in antique stores – it is a browser's paradise! When the weather is nice, there are often crowds of people wandering in and out of the unique and eclectic stores that line the main street of the town. Friendly people, warm country folk … and tourists: our target customers were potentially plentiful.

The week we opened was slow – every other business owner that we knew in town let us know that it was much slower than usual for the time of year – things would get better. Customers came into the store in a trickle – but we seemed to do OK. The weekend was sunny, but cold for this time of year – there were more customers than during the week, but not as many as I expected …

I ran the reports – and added up our sales for the first week …

We exceeded our break even number by $14.57 in the very first week!

The second week was even better … and still other business owners are telling us it is abnormally slow due to the weather …

Definitely a positive sign – the operation is paying its bills from the start. Next goal – reaching positive cash flow ...
Published Mar 15 2010, 07:49 AM by moneycoach
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