Business 101: Every business starts out making a loss

break-even

A dear friend of mine chatted me up this morning. She has a US-based friend who wants to start a business here in Nigeria with the aim of using the proceeds there to pay his bills over there. She wanted to know if I could recommend any business. My response?

Every new business has to cross a break-even point to make a profit. This is the point at which expenses and revenue are equal: there is no net loss or gain. Before this point, the business is unable to sustain itself, and so records losses. After this point, the business is making profit. Every business goes through this process. For some, getting to the break-even point is shorter, and for others, it is longer – sometimes a period of three years and above. An investor earns returns from profits. It does not matter how many years it takes to cross that break-even point into profitability. Until a business breaks even, the investor gets no returns. Here is a simple break-even chart:
break-even chart

Whether it was Facebook, Google, UAC, MTN, Tastee Fried Chicken, or Samsung, every business starts out by running at a loss till it breaks even. Your business will not escape it. Why many in these parts do not see it is because they do not keep records. There may be an exception to some one-man, services-based businesses that require little overheads and running expenses. But that wouldn’t work for this individual. He is not here and so is unable to render services on ground. He wants to setup something that runs without him and that will involve employing others.

Also read:  UMIDIGI S

What this person wants to achieve – instant returns on such an investment – is mission impossible.

If you want to invest in a business for immediate returns, invest in an existing business that is near, at, or has crossed the break-even point. If you want to setup something from scratch and are in a hurry to reap returns right away from your investment, you may need to stay away from business. Don’t forget it: every business has to cross the break-even point to make a profit.

Mister Mobility

I started blogging about mobile in 2004 as a fun way to share my passion for gadgets and mobile services. My other interests include digital media, speaking and teaching, photography, travelling, and dancing.

2 thoughts on “Business 101: Every business starts out making a loss

  • March 16, 2014 at 3:24 pm
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    Business in Nigeria is unpredictable.

    I acquired two assets a few years ago with a budgeted break even point of maximum 2yrs6months.
    The first asset was acquired 6 months before the second one.
    The first asset has worked for 2 yrs 9 months and its average profit is 17.5 % in relation to cost of acquisition.
    The second asset has worked for 2 yrs 6 months and its average profit is 76% in relation to cost of acquisition.

    Business in Nigeria needs strict monitoring and understanding.

    One of the most peaceful things to invest in Nigeria is Mutual funds and Real estate.
    Mutual funds most preferably the ones with principal preservation depending on your risk appetite and real estate always increases in value.

  • March 16, 2014 at 3:50 pm
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    // What this person wants to achieve – instant returns on such an investment – is mission impossible. /

    Na, it’s possible.

    you may consult me.in. camera…for a small fee..

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