It’s exciting when a business first starts to break even before it is able to turn a profit. And depending on the nature of the business, sometimes it can generate a profit almost immediately. While it’s expected that the process will take some time, you might wonder what is the typical duration. How long will it take for you to start seeing profits?
Two to three years is the average time estimate to this familiar question. However, no business is the same – and key factors such as initial startup costs and ways of measuring profit will differ greatly from one business to the next. This means that for some businesses, they could be turning a profit immediately while others may take a couple of years longer to do so. Let’s dive deeper into the subject in the following subsections.
Profitability based on business type
If a business venture wants to make and release a new product on the market, experts estimate that it’ll take them three years on average before becoming profitable. The reason why is because of the necessary expenses accrued to deliver such products. Some of these expenses include, but are not limited to, marketing costs, outsourcing accounting and bookkeeping services, and adding experts to the development team.
In contrast, a business that starts small, like those that home or online-based, can typically see profits sooner than later. This is attributed mainly to the fact that it often requires little to no initial capital to start up. Still, not all businesses of this kind can generate immediate profit since several constant expenses, such as marketing and product costs, are still something to take note of.
Whichever category your business belongs to, there are some tasks that you’ll eventually need help with. As the best audit firm in Singapore, Ackenting Group specialises in assisting SMEs, startups, and entrepreneurs with all of their corporate needs and requirements. From audit services to corporate financing, we’re able to professionally handle all of your business needs to achieve success.
Finding out when you will turn a profit
No business is the same, which means that their profitability timeline will differ. As such, it’s crucial to actually calculate and positively determine when your business will start making money.
To find out when you’ll turn a profit, you can use a formula called the “break-even analysis” to reveal how much revenue is needed to cover your business’ total operating expenses.
The goal is to use this formula to calculate your revenue and expenses until the result cancels each other out perfectly, resulting in zero as the final total. Once this is achieved, commonly known as the break-even point, you can devise business strategies that will further increase your revenues and lower costs to turn that zero into a positive number.
How to determine if the business is profiting during the first year
If you’re still curious to know if you will be making a profit in your first year, then you will first need to find out your revenue and expenses. Once you’ve ascertained those two variables, deduct your expenses from the revenue to know your profits.
If the result is a positive number, then it means you’ve gained profit. Otherwise, you’re sustaining losses. And if the result is a flat zero, then that means you’re breaking even. Another helpful tip is to look at your profits monthly, not just annually. By discovering your profit trends, whether it’s constant or rises and dips during certain seasons, you’ll be able to take action and rectify the business’ course to increase profitability.
The average profit gained in the first year of business
Business owners can expect a number of things during their first year, but profit isn’t one of them, as disappointing as it may seem. In reality, most new businesses will need to persevere for at least 18 to 24 months before actually generating profit.
And if by some chance a company attains success in less than a year, they could still lose the profit gained by investing it back into itself, whether it’s by hiring new employees or expanding their product or service line. On top of that, there are also taxes imposed on the revenue you generate.
Conclusion
For most businesses, profit won’t be near-instant and will typically only appear after a couple of years. Although it may seem too far for some, time will usually pass by rather quickly while you’re managing the business’ day-to-day operations. And before you know it, your bottom line will reveal the fruits of your labour and increase as the years go by.
If you require any assistance on accounting services, feel free to drop us an email at johnwoo@ag-singapore.com or contact us at +65-66358767. At Ackenting Group, we offer a complimentary 30 minutes online consultation for us to better understand your business requirements.
