What happens to my business if I can only cover my running costs?

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litteacher8 eNotes educator| Certified Educator

If a business can only cover costs, it will not survive.  Businesses need to make a profit to survive.

The purpose of a business is to make a profit.  A business that only covers costs spends basically what it receives in revenue.  This business will be very vulnerable, and will not likely survive.  This is because the business will not be able to be responsive to changing conditions.  Businesses need to be adaptable. 

Businesses will often have high and low revenue trends, but fixed costs generally remain the same.  For example, it costs about the same to lease a space and heat, cool, and light it whether you have no customers or a revolving door of customers.  Without an influx of capital from investors, a business will not last this way for long.

A business will often be only covering costs, or even operating at a deficit, in the beginning of operation.  As the business is starting up, this is viable with enough investment capital or cash from loans. However, it should not last long if the business is going to succeed.

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