"What is success?"
When asked this question, entrepreneurs will give different
answers. Some will say success is achieving independence,
control and security. Others may say that it is power, acclaim
and money. Still others will say that it is having friendship,
practice, even rising from failure. And so on and on…
(article continued below ...)
Success is tough to define. A business normally passes
through several milestones, that when achieved, proves that the
business is on the right track. These milestones serve as
indicators that the business is growing and expanding - in the
right direction.
A successful business does not happen overnight. You don't
start a business, and expect it to earn profits the next day!
First
Indicator: Achieving the Break-even Point
After you have determined that your business idea is
feasible, you should begin to focus your efforts in business
development. This involves market research, cost calculations to
see if you can make money and determining prices. Before
launching your business, you need to know the one-time costs you
will incur for start-up. The smart entrepreneur needs to know
exactly what the startup costs will be for the business, and
makes sure there's more than enough capital to cover those costs
and any contingencies.
A new entrepreneur must also calculate a very important piece
of data: the breakeven point. Stated simply, the breakeven point
shows what level of sales (in unit volume or dollars) is needed
to offset all fixed costs of doing business and the variable
costs of producing products. Fixed costs are expenditures on
which the level of sales has no effect, including rent and loan
or lease payments. Variable costs are directly affected by sales
volume and can include labor wages and utilities-hourly workers
and electrical consumption, for instance, can chew up more or
fewer dollars month to month depending on how well sales are
proceeding. Many believe that high sales will automatically lead
to high profit. But profit only comes after you have exceeded
your break-even point.
Achieving the monthly breakeven point is the first indication
that your business may be viable. At this point, though, the
proprietor still has no income. Breakeven means that expenses
are equal to revenue. Profit is zero. The paycheck for a
proprietor is profit.
Second
Indicator: Earning a Living Wage
You know that your business is starting to do well when it
can provide you with a living wage. After months of living on
very tight budget and no income while starting your business,
you have now reached the stage when you can start to draw
income.
However, there is still no real profit, because all the
income is consumed by the owner's need for a living wage. A
living wage is just that: one that your family can live on. This
stage is similar to having a regular paying job with a stable
paycheck. At this point, the small business entrepreneur is
doing as well for himself or herself as they would be working
for someone else at a similar level. There is nothing left over.
The business as yet has not demonstrated an ability to
generate a return on investment. Most small businesses fall
within these categories, earning just enough to yield a living
or respectable wage for the owner.
Third
Indicator: Achieving Real Profit
Your investment becomes a successful business only when it
can move beyond the respectable wage category and contribute
real profit. Real profit is cash left over after a respectable
wage is provided. The ability to earn real profit is the
dividing line between owning a job and owning a business.
At this stage, your business not only provides you with a
respectable wage for time spent, but it also is able to pay you
back with all the cash that was invested. It goes beyond payment
for any principal on debt or income taxes owned. After paying
the obligations of the business, all of the cash profit that is
generated is discretionary cash. It is not obligated by loans or
other debts. It provides the owner a respectable wage and cash
left over. A business at this level becomes more valuable than
the value of its assets. It is generating a return on investment
and positive cash flow.
=====
| 
