Before you invest your savings or take out a loan, there is one question worth more than any other: can this business sustain itself? You do not need to be an accountant to answer it. Four indicators make it clear.
1. Break-even point
It is the sales level where you neither gain nor lose. You calculate it by dividing your fixed costs by the margin you make on each sale. If you need to sell 500 units a month to avoid losses and your market barely supports 200, the business does not add up.
2. Contribution margin
It is what remains from each sale after subtracting variable costs (raw materials, commissions). That money pays your fixed costs and generates profit. If the margin is very low, you will have to sell huge quantities just to survive.
3. Cash flow
A business can be profitable on paper and still go under from lack of cash. Cash flow measures when money comes in and goes out. If you collect at 60 days but pay at 30, you need a cushion to cover that gap.
4. Return on investment
How long does it take to recover what you put in? If you invest and it takes ten years to get it back, that money might do better elsewhere. Earning is not enough: you have to earn enough to justify the risk.
Warning signs
Depending on a single customer, margins that shrink every month, or growing in sales but not in cash are red flags. None means the business is doomed, but all demand action.
If you want a quick, objective assessment of your business viability, an AI diagnosis reviews these indicators for you and tells you where your risks and opportunities are. It is free.