How long does it take for a business to be profitable?

How long does it take for a business to be profitable?

Starting a business is exciting, registering it, building a website and having your first few customers; only a few things can compare. But how long will it really take before you are profitable, will it be three months or 3 years or perhaps more? This is a guideline on when you can expect your business to be profitable.

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Disclaimer

All businesses are different; there is no exact time as to how long your business will take to be profitable. So many factors influence business profitability. However, there is a timeline that you can use to set your expectations; this timeline is based on stats and when most businesses report turning their first profits.

What is profitability?

There are many ways to define profitability, a huge number of entrepreneurs define profitability from a subjective perspective. Profit is basically the income minus the expenses. If your monthly expenses are R400 and your monthly income is R500; you are already profitable according to this definition.

However, that’s not what you want to know is it? What you really want to know is when will the business become successful as per your definition of success. That’s a lot harder to answer, but there is some data that sheds some light.

How long will it take?

According to FreshBooks; it will take between 2 to 3 years before your business becomes profitable. It will take around 7 years before it becomes the type of success that you had imagined when starting out. 7 years might seem like a long time to wait; but it’s not, there seems to be something about magic number 7, a lot of entrepreneurs achieved true success after 7 years.

This was when the business got to the stage whereby they felt like it had become what they envisioned when starting out. From my own experiences and working with other entrepreneurs; you should wait for at least 3 – 4 years before calling it quits.

It’s highly improbable that you will make any kind of profit in your first 12 months or even the second year. Significant growth usually happens on the third year and hyper growth comes in on the 4th year.

The problem with outliers

The problem with outliers is that everybody wants to be one; this leads people to set up unrealistic expectations for themselves. Outliers are outliers for a reason and you are not statistically likely to be one; don’t think that your business will achieve success within 6 months or even one year, it likely won’t.

Even companies that are labelled as overnight successes have been around for at least 4 years on average. A company that is 12 years old is still considered a startup in some cases. Don’t make your calculations based on the assumption that you will be an outlier; make your calculations based on averages.

Focus on growth metrics

A lot of entrepreneurs start with little to no capital; then expert their businesses to bring in millions in revenue within a short period of time. That’s not how it works, how can you start a business with R1000 and expect to make more than R10 000 per month by year end. That would be nothing short of miraculous.

What you should keep an eye on is the growth percentage; your business might be growing at a rate of 80% but you won’t notice that if your main focus is the money. Let’s assume that you start a business with R5 000 and it grows at an average of 80% per year. Your business will be worth around R1.7 million after 10 years; which might not seem like a lot. But it will be worth over R30 million in 15 years and over R600 million after 20 years.

Most entrepreneurs are on a path to success but don’t realize this because their main focus is on the amount of money the business generates. Going back to the example above; this same business would only be worth R29 000 after 3 years. Which might lead the entrepreneur to feel like the business is unprofitable and quit.

Conclusion

Building a company is hard and needs a lot of patience, 3 – 4 is generally how long it will take before you see the fruits of your labour. Do you have any thoughts or questions? Comment below.

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