Profitability is not always the main priority for a business during its first year and may not even be necessary. Depending on your business plan and funding strategy, you might spend your first year establishing your brand, tweaking your operations and paying off start-up costs. If you need to make a profit to pay your bills shortly after you open your doors, you might need to rethink your launch or seek additional capital to help you stay in business after you get started.
Consumers and the media often show more interest in and pay attention to a product when it’s new. Because a first impression is a lasting impression, it’s important that you communicate your message correctly from the start. Make sure your marketing plan identifies the right target customer for your product or service so you can create a brand strategy and promotional and communications plans and ensure people correctly understand what benefit you offer. Having to backtrack from an improperly communicated or misunderstood message can be fatal in year one of a business launch.
You can spend months or years developing a product or service you think will wow the marketplace, but until you open your doors, you won’t know the marketplace’s reaction. During your first year, it’s critical that you get customer feedback soon after you launch, review your website traffic statistics, analyze your sales patterns, read online and print reviews and examine your product returns and customer calls. In addition to analyzing your reception in the marketplace, examine your operations to determine if your production process, quality management, cost-control and marketing efforts are working as well as possible.
Shortly after a launch, your sales most likely won’t cover all of your initial costs. Managing your first-year cash flow, especially if you don’t have cash reserves to operate for months without a profit, is critical. In addition to creating a financial budget, your accounting department should create and update cash flow statements and receivables aging reports. In addition, keep a close eye on your credit availability and debt service, including repayment of your investors' start-up costs.
Of course, you won’t survive without income, so building your customer base is critical. Focusing on sales is different than focusing on revenue, because you might have sufficient capital to survive for several months or more before you reach profitability, allowing you to more thoughtfully develop your selling strategies and customer base. For example, offering discounts might bring in quick revenue but can damage your brand image, leading to a decrease in long-term sales. During your first year in business, focus on developing a sustainable sales pattern, rather than maximum revenue.
Many small businesses fail during their first year of operation, and more than a few have closed their doors even after sales began to rise. The reasons include failure to adapt a product or service that isn’t received well by the marketplace, poor cash flow, incorrect distribution methods, lack of cost control and poor marketing. Even a product consumers want isn’t enough to prevent many businesses from failing if owners don’t pay attention to these factors. Once you launch, you can’t wait for and rely on customers to keep your doors open. Your business objectives must go beyond creating and selling your product and include ongoing efforts to fix any problems you discover as you build your sales and tweak your marketing and operations.