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I'm doing a business plan for a web business, and in the financials part, I'm getting this:

Net Profit
Year 1: ($234,788)
Year 2: ($2,361)
Year 3: $251,708

Net Profit/Sales
Year 1: -421%
Year 2: -1%
Year 3: 33%

What do you think? Is it normal to get profits only in the 3rd year?

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5 Answers

up vote 2 down vote accepted

Depends TOTALLY on your business. Seriously. If you take 1 year to develop your poduct - where do you think revenue will come from? If that is a consulting business or has a product.... why no income?

There are businesses that took 10 years to build something (tunnel between europe and uk). There are others profitable first month (consulting heavy or having a product).

So, this question can not be answered in general.

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It's a web product... i'm considering 6 months to develop it and in "month 7" start selling it. It's a subscription based product. – Rui Apr 25 '11 at 20:55
Sounds ok then. "Selling" is nice, but it wont liekly make tons of mone for some months, but company costs go on. Depending on monthly burn rate... can take a year to turn a handy profit, and all the time you keep the minus wave forwad. – NetTecture Apr 25 '11 at 21:00
up vote 0 down vote

Like NetTecture says it depends totally on your business - there's many web businesses took years to break to profit, others profitable from almost day one.

What you also have to bear in mind is business plan / financial forecast is frequently far better labelled "wild and crazy guesses". 3 year plans are almost always off.

So a better way of looking at it perhaps is how does this affect you?

What can change in two years?

Can you handle the year 1 scenario of $1/4m loss?

Have you run a worst case and expected case scenario?

Have you run a SWOT analysis also?

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up vote 0 down vote

Mine looks similar, although the numbers are larger, but we are profitable in Year 3. Theres a lot of hiring though in between.

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Normal?

No, that's usually a bit early.

It varies a lot though, and is usually proportional to the size of the organization overall (ie: larger orgs take longer to reach profitability as a rule of thumb).

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up vote 0 down vote

You should clarify what is the meaning of "profit" and "cash flow". A business can earn negative profits in first years, it's normal. Nevertheless, you shall plan and maintain a positive cash flow (cash balance) every single day. That means proper funding (equity inflow, grants or loans).

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1  
As other members already noted (in other of you answers), please do not use links to you product to spam in you answers. – Ross Apr 28 '11 at 6:40
In addition don't talk bullshit. There are a great many businesses that show even negative cashflow for some time, even successfully ones for days. When i buy a new server - out of profits - I wipe out weeks of cashflow. But who cares, as long as the cashflow is positive in a larger cycle (i.e. month)? YOu dont want to ever buy something larger than a days's cashflow? Funny. – NetTecture Apr 28 '11 at 6:46

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