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How to do a quick financial feasibility test print Print

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Starting a business? Before you progress any further with your idea, it could help to crunch the numbers to find out if your idea is profitable.

Some first-time business owners and entrepreneurs let the appeal of their ideas bias them. While it’s easy to get excited about the idea of starting your own business, to decide whether all the hard work will be worth it, it pays to look objectively at your numbers.

Even if you’ve never made a sale, this article gives you some ways to predict the future financial outlook of your new business.

What’s your break-even point?

It’s important to know what your break-even point will be when you start up a business. This is where your costs equal your income so you neither make a profit or a loss.

Use our free break-even point calculator to identify:

  • what level of sales you require each week to cover costs 
  • the impact that increasing price (or discounting) will have on the sales required to break-even 
  • how lowering fixed costs can dramatically improve your break-even point. 

Two business owners review a report

Will you make a profit? Write a projected profit and loss statement

This forecast will test the viability and sustainability of your business idea, by establishing the volume of sales that your business needs to achieve, to cover its costs before generating a profit.

Our understanding your Profit and Loss statement article will take you through this step by step, but a few key things worth highlighting here are:

  • when starting your business from scratch, it may take time to establish a customer base and revenue stream. 
  • many businesses have seasonal fluctuations in revenue that should be factored in. 

Do a cash flow forecast

A cash flow forecast is similar to a profit forecast, however there are crucial differences: the profit forecast enables you to estimate and target the revenue your new business needs to generate in order to make a profit, the cash flow forecast aims to predict the cash flow cycle of your new business. The benefit of this is to enable you to budget effectively.

Use our free cash flow forecast calculator to help make your forecasts are as accurate and reliable as possible.

Even though you may not yet have started your business, the amount of time you spend on assessing a realistic sales level, and then analysing and improving your forecast cash flow is crucial. A good cash flow is not just a spreadsheet of numbers that you have quickly made up; it’s a crucial document.

Cash flow is the lifeblood of any business, and the aim of all business owners is to have more money coming in than going out.

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