If they’re asking that question then they probably haven’t been in business themselves because the answer is rather complicated.
Start-up costs are huge and can’t be recovered in a short time. While that money isn’t all out of pocket, loans need to be paid back and the term for business loans are not very long, 5-7 years, so payments are fairly high. I’ve had people ask me if my business was profitable after I was only open a few months. That’s the field of dreams concept of business, if you build it they will come, as if customers flood you with money the moment your doors open.
In addition to start-up costs there are the operational costs and, with a slow (but hopefully steady) increase in business, the money to keep things going needs to come from somewhere. Since it’s not coming from customers it has to come from the owner or investors. It’s called the burn rate and needs to be watched closely. There were plenty of weeks and months that I had to add cash to cover payroll, loan payments, or marketing expenses.
I have indeed seen businesses reach profitability in a short period of time but that’s the exception.
Patience and attention to all aspects of the business, revenue, expenses, marketing, and staff are the key things the entrepreneur needs to focus on. If there is progress then profits will come. Owning a business is a long-term prospect and success doesn’t come over night.
So my response to people who ask me these questions is: “If only it were that quick and easy everyone would own a business.”
What’s your response? Add your comment below.
Posted in Business, General, Money and tagged burn rate, cash, entrepreneur, loan, payroll, profitability, profits, start-up by AJ with no comments yet.