Starting a Small Business: The Three Numbers to Calculate Before You Launch
How break-even point, startup runway, and net present value work together to sanity-check a new business idea before committing money.
Most new business ideas fail a basic numbers check well before they fail in the market — the problem is most people never run that check before spending real money.
First: how many units before you stop losing money?
Break-Even Units = Fixed Costs / (Price − Variable Cost). If your fixed monthly costs (rent, base salaries, insurance) run $10,000, you sell a product for $50 with a $20 variable cost to produce, your contribution margin is $30 per unit, and break-even arrives at 10,000/30 ≈ 334 units per month. If your realistic sales projection is 200 units a month, that gap is worth confronting immediately, not after six months of losses.
Second: how long can you survive before revenue catches up?
Runway = Cash on Hand / Monthly Burn Rate. Starting with $80,000 saved and spending $9,000/month before revenue meaningfully offsets costs: 80,000/9,000 ≈ 8.9 months of runway. If reaching the 334-unit break-even point realistically takes 12+ months of ramp-up, the runway and the break-even timeline are now in direct tension — a gap that either needs more starting capital, faster ramp-up, or lower fixed costs to close.
Third: is the eventual payoff actually worth the risk-adjusted wait?
Net Present Value discounts future expected profit back to today's dollars, accounting for the fact that money (and certainty) now is worth more than the same amount later. A venture requiring $50,000 upfront, expected to generate $15,000/year for 5 years, discounted at a risk-adjusted 12% (reflecting real business risk, not a savings-account rate): the present-value factor for a 5-year annuity at 12% is roughly 3.605, giving NPV ≈ 15,000 × 3.605 − 50,000 ≈ $4,075 — a thin but positive margin, meaning the venture is expected to just clear its cost of capital, not a comfortable buffer.
Why running all three matters more than any one alone
Break-even tells you the operational target; runway tells you whether you'll survive long enough to hit it; NPV tells you whether the whole venture is worth the opportunity cost of the capital and time involved. A business that clears break-even eventually but runs out of cash first never gets the chance to prove the NPV case — which is exactly why runway is often the binding constraint in practice, even when the underlying business model is sound.
Before you commit
None of these three numbers require anything beyond the inputs you should already know before starting: your fixed and variable costs, your expected sales ramp, your available capital, and a realistic discount rate reflecting the actual risk involved.
Run your own numbers with the break-even calculator, startup runway calculator, and NPV calculator.