When you're an entrepreneur, it's common to hear incredible success stories told by your peers filled with harrowing close calls and courageous leadership decisions which formed the company's early years. These stories are inspiring and interesting, but they rarely accurately depict how things happened!

Young entrepreneurs are often left with questions like, how much does a business make in its first year? What should I expect in the early days of starting a business? How do I know if my business is doing well?

Many of these answers depend on several factors: the type of business you're in, your location, and more. Regardless, to paint a picture of what a real business' first year looks like, Austin and I decided to sit down and go through every dollar we made in 2021.

How long does it take a business to be profitable?

While it depends on the type of business, industry, location, and multiple other factors, it's true that most businesses are not profitable within their first year. According to the U.S. Small Business Administration, almost 25% of small businesses fail within their first year.

I've had the privilege of working with small businesses for years, and from what I've seen, most first-year businesses bring in less than $50,000 in gross revenue. The first year in a business is typically more about developing your product, understanding your customer, and doing your best to create some sort of cash flow. Juggling all of these aspects of running a business is a huge undertaking, and it only grows to become more complex.

What can you do to increase your business's profitability?

There are several factors that affect how profitable your business is. Profit is a simple equation: revenue minus expenses. So, the biggest hack to increase your profitability is twofold: make more money and spend less of it. Sounds relatively simple, right? We all know it's not that easy, though.

To truly raise profits, it's necessary to identify the core issue that's plaguing your business growth; while it may be simple to identify that you need to make more money, going a level deeper will help identify a path forward. For example, if your business is needing to generate more cash, there's a deeper issue at play! Are you having trouble attracting new customers? Retaining existing customers? Do you need to raise your prices or change your payment terms?

By understanding the core issue that's affecting your business, you can make educated decisions on what to change and how to move forward.

Why should I look at what my business made last year?

When growing a new business, it's important to always be looking for areas to improve in. If you've identified that you'd like to see more profit coming from your business, or if you'd like to make more money in general, getting familiar with your business's finances is truly the only way.

When you've identified the thing that your business is struggling with the most (the core problem that you're facing) it's relatively simple to think of solutions. However, implementing those solutions is the hardest part! Implementation is the vital stage of changing and growing your business. It's far easier to see the progress that you're making and the problems that you're solving by measuring the results of your solution.

By reviewing and comparing your business' financial information to a similar period, you're able to see how you're growing! Understanding your finances leads to better, more informed decision-making and a higher level of confidence in your future as a business owner.