Before you head to your bank or credit union to apply for a loan, be sure that you understand your situation and your options. What are your startup costs? At what level of revenue will your business break even? And how does SBA assist new businesses when it comes to financing?
Understanding the Basics
Have you thought about how you are going to fund your business? When considering financing options, it’s a good idea to have an understanding of your financing needs as well as the types of options that available to help you start and sustain your business. In this section, SBA will help you assess the costs associated with start up and growth, the pros and cons of using your business versus your personal finances, the types of financing that exist, and the factors that banks evaluate when reviewing loan applications. We’ll even help you to determine if your business may be eligible for SBA assistance programs.
Borrowing money is one of the most common sources of funding for a small business, but obtaining a loan isn’t always easy. Before you approach a lender for a loan, it is a good idea to understand as much as you can about the…
Starting up a business can be a tremendous strain on your personal finances. It can take six months or more before your new venture is profitable and can provide financial support for you and your family. Before going into a…
If you are planning to launch a business venture, it is vitally important to know that you will have enough money to keep it afloat. Every business is different, and has its own specific cash needs at different stages of…
Understanding financial statements is essential to the success of a small business. Financial statements can be used as a roadmap on your business journey to economic success. Using numbers as navigation aids can steer you in the…
While the vast majority of businesses are eligible for financial assistance from the SBA, some are not. In general, applicant businesses must: Operate for profit Be engaged in, or propose to do business in, the United…
Breakeven Analysis: Know When you can Expect a Profit
Breakeven analysis is a tool used to determine when a business will be able to cover all its expenses and begin to make a profit. For the startup business, it is extremely important to know your startup costs, which provide you with the information you need to generate enough sales revenue to pay the ongoing expenses related to running your business.
A startup business owner must understand that $5,000 of product sales will not cover $5,000 in monthly overhead expenses. The cost of selling $5,000 in retail goods could easily be $3,000 at the wholesale price, so the $5,000 in sales revenue only provides $2,000 in gross profit. The breakeven point is reached when revenue equals all business costs.
To calculate your breakeven point, you will need to identify your fixed and variable costs. Fixed costs are expenses that do not vary with sales volume, such as rent and administrative salaries. These expenses must be paid regardless of sales, and are often referred to as overhead costs. Variable costs fluctuate directly with sales volume, such as purchasing inventory, shipping, and manufacturing a product. The formula for determining your breakeven point requires no more than simple arithmetic.
Additional information on determining your breakeven point:
Will Your Business Make Money
On-line Breakeven Calculator