In this issue
Try this: How I used ChatGPT to check the viability of a business idea.
In the news: How to think about the threat of tariffs.
Tip of the month: Get a free mentor.
Try this: Use AI to assess profitability
To level with you, I’m skeptical about large language models like ChatGPT. I think they get too many facts wrong and make it harder to decide whether to trust a source.
But my editor keeps pushing me to experiment with them, and over time, I found a good use case: estimating startup pricing.
I learned how to do something similar using Excel in my Managerial Accounting class last year. But tools like ChatGPT make the process more accessible.
Here’s how to get a quick, relatively easy gut check with an LLM:
1. Start with your hypothetical. Here’s what I told ChatGPT: I run a catering company. Right now I cater about 5 events per month. They usually have 12-25 people in attendance. Ingredients for one event cost me between $400 and $600. How much do I need to charge per plate to cover my costs?
In response, it estimated:
Additional costs, like labor, transportation and equipment rental.
Total event cost, broken down into cost per plate.
How much markup to add for profit (25%).
2. Refine your details. I came back with: Right now I cook in my own kitchen, but I'm thinking about renting a space for $1,000 per month. I'd also like to upgrade my equipment, which would cost around $1,000 (just a one-time cost). This would allow me to cater more events — maybe 8 to 10 events per month. How much would I need to charge just to break even, not to generate any profit right now?
Again, the model walked me through:
Fixed costs (rent and equipment) over 12 months.
Variable costs (ingredients, transportation, labor, etc.) per event.
Monthly costs for the scenarios at the minimum and maximum ends of both scales, from 8 events with 12 people at each to 10 events with 25 people at each.
A breakeven price for each scenario ($34.33 and $73.22 per plate, respectively).
3. Assess the output. ChatGPT suggested a wide price range, but it’s a starting point. If the higher end is way out of scale with competitors, that may suggest a narrow path to profitability. If it’s comparable? There might be something here.
Necessary caveat: LLMs aren’t a replacement for your own research, a mentor with experience or an accountant. Double-check any figures, like sales tax rates or the average cost of an ingredient or material. (Speaking from experience, I tried to use ChatGPT to choose a health insurance plan last fall and it was wrong about HSA contribution limits.)
4. Iterate. Some additional questions to try:
How much would I need to charge or how many events would I need to cater every month to generate profit equal to my current income? This is a way to see whether you could replace any current income with income from your business.
How much do I increase profit if my average event attendance doubles?
If I have to hire someone to help me cater larger events, how does their pay change these numbers?
If you try this, I’d love to hear what you asked and what the model suggested. Write to me anytime at [email protected].
In the news: How small businesses are reacting to tariffs
The Trump administration’s tariffs are disrupting business — even though policies are in flux.
Most business owners don’t have the luxury of waiting to see what happens. (My colleague Randa Kriss spoke to four of them about how they’re reacting.) But if you’re just starting out, you do.
As you explore your business idea, plan for what things might cost with the highest proposed tariffs in place. We built a calculator to help with that. If tariffs are later reduced or repealed, lower costs might come as a nice surprise.
Beyond that, look for ways to build redundancies into your supply chain. Start relationships with multiple suppliers in case one pivots or closes, for instance.
Tip of the month: Free, trustworthy mentorship
SCORE is a free, nationwide mentoring program for all business owners. Their mentors can help you write a business plan, figure out marketing, find an accountant, apply for business loans and lots more.
SCORE is a low-stakes way to get personalized advice from people with experience. The program is funded in part by the U.S. Small Business Administration, so it won’t try to sell you anything. Often, mentors are retired from entrepreneurship or a related field like business banking.
You can search for potential mentors on the SCORE website.
