Within the framework of business creation, the entrepreneur must imperatively check the profitability of his project. Indeed, the potential income that can be expected through the intermediary of the future business is essential. The profitability study will determine whether or not the project is feasible in its current configuration. There is only one reliable way to calculate profitability: the production of a financial forecast.
How to check the Profitability of a Business Creation Project?
There is only one real solution to check a business creation project’s profitability: you have to establish a financial forecast. This approach corresponds to the study of the financial elements of a project. It takes the form of preparing an income statement, a balance sheet, a cash flow statement, and a financing plan.
Then, to carry out a correct profitability study on a business creation project, it is necessary to ensure:
- To consider all the expenses of the future company (expenses related to the activity, overheads, salaries, social contributions, taxes, etc.).
- And, for each expenditure, to incorporate an amount correctly assessed in the forecast.
Once all the financial information is included in the forecast, it is appropriate to study the financial tables. Several approaches are then possible to learn profitability:
- The wages and social contributions of the entrepreneur are included in the forecasts. In this case, it is necessary to verify that the result is in equilibrium or positive and that the cash flow is still sufficient.
- The wages and social contributions of the entrepreneur are not included in the forecasts. The problem then consists in verifying whether the remaining means (the profit before remuneration of the entrepreneur) is sufficient to hope for a good income.
Should we systematically check the profitability of a project?
Even a relatively simple project on the surface deserves a planning study. Determining a profit is never easy, regardless of the characteristics of the project. Indeed, this implies:
- Correctly budget all the expenses and operating costs of the company,
- To accurately determine the amount of the manager’s social security contributions (which is far from simple),
- And to calculate all taxes, in particular, those applicable to the profits realized.
The correct assessment of these elements will then allow the business creator to determine the amount of his potential income and check whether his project’s profitability is sufficient.
What profitability objective should we set?
Regarding the necessary level of profitability, there are no rules. This is because the income that an entrepreneur wants to achieve through his new business depends on his needs and goals.
One of the first questions to ask yourself during the financial study of a project is: what is the decent income I need with my new activity? Then, it is necessary to judge whether it is opportune or not to invest in the project to reach the level of profitability envisaged in the forecast.
Insufficient profitability does not necessarily have to lead the entrepreneur not to commit to his project. Beforehand, and to the extent possible, we must work on solutions that could improve profitability. On the other hand, without reasonable solutions to achieve a sufficient level of profitability, it is not advisable to engage in creating the company in the current state of the project.
Also Read: Has The Covid-19 Had An Impact On Business Start-ups In 2021?