While it's possible your new business will be an instant cash machine, several business publications recommend having enough money lined up to support your company and yourself for six months. In most cases, Kiplinger magazine states, that's the soonest you'll make enough profit to pay yourself a salary, so be prepared. Careful financial analysis can give you a better idea of how long it will take before you're in the black.
Break even analysis is a method for determining the profitability of your proposed business. Draw up estimates of your fixed costs, such as office space, utilities and insurance; revenue from selling goods or services; and the gross profit on each sale after subtracting sales costs. Divide the gross profit by the total sale price and you get the gross profit percentage. Then divide the gross profit percentage into the fixed costs.
If your fixed costs are $5,000 a month and your profit percentage is 25 percent, for example, divide .25 into $5,000 and you get a $20,000 break-even point. That means that your business breaks even and covers its costs when you achieve $20,000 a month in sales revenue. It will become profitable when you make more than that. If your business plan shows you exceeding $20,000 five months after opening, that's when you'll start turning a profit.
If your timeline shows you won't attain profitability before your savings run out, adjust your business plan. You can increase your sale price, trim your fixed costs -- fewer employees for instance -- or find a way to lower the costs of goods or service, such as buying cheaper supplies. Each of these choices can hurt your business as well as help it, so think carefully about which option will work best for you.
If you don't think your business can survive until you reach the break-even point, look for financing. Putting your own money on the line will allow you to retain the most control of the company. Family and friends may also be a good option, but you should treat it as a business deal, not a personal loan. Sign documents, work out the terms and make sure they know how long it will be before you can pay them back.