The only way to know when your business will be profitable is to make a financial projection (or “run the numbers”). If you don’t have training in finance, you can accomplish this in a few different ways:
Get a Business Mentor
You can get an experienced business mentor free at SCORE. Make sure to request someone who has familiarity with small business finance and can coach you on financial forecasting. Your mentor won’t do the work for you, but will help you avoid common mistakes and see your numbers clearly.
Hire an Expert
The fastest path to an answer is to hire an accountant or bookkeeper who can interview you, gather data, and assemble a projection (or “pro forma”) for you. In addition to speed, this method offers a higher level of certainty, as your projection will be built by someone who has considerable experience. If you don’t know how to find such a person, try contacting a local small business attorney and asking for a recommendation.
Buy Some Accounting Software
If you can’t afford to pay someone to build your projections, it is less expensive to purchase a small business accounting software. There are several options that are reasonably priced and fairly user-friendly. Make sure to read the online reviews of a few different options before you choose one.
Get a Free Template
If you need a free option, there are some excellent templates and workshops available. They may take a little while to complete, but you can get the job done without incurring cost. SCORE offers a template, the U.S. Small Business Association offers periodic training events, Google and Microsoft provide some options, and your local public library may also have a few choices. We don’t recommend that you download a template from a random site, since you never know whether the source is legitimate. (Unfortunately, fraudsters know that small business owners search for free financial projections templates, so the link you click on could be a marketing trap – or worse, a virus trap.) Websites that have generic-sounding names including “business” and other everyday words are likely to be “advertorial” landing pages (articles that appear to be unbiased news, but are actually paid advertising). Do be careful to select your template from a trustworthy site.
As with most things in entrepreneurship, determining when your business will achieve profitability will require either your time or money, or a little of both. However, making this investment in learning how your business’ financials work will pay off in many ways. The more information you have, the better equipped you are to make good decisions for your venture.