Why profit matters
The word, "profit" is a sexy term that many business owners dream of having. The long nights, early mornings and countless sacrifices will all be worth it, once they have profit. Unfortunately many business owners fail to achieve a profitable business, and they don't know to get it. Many think that if they increase their revenue, get more customers, or find that new and innovative widget, their profit dreams will come true.
Let me tell you that profit is achievable, but there should be a strategic plan to achieve profit…ideally from day one.
Why does profit matter?
Profit matters if you are looking for a loan or an investor. Anyone who will loan money to you or infuse any amount of capital into your business is going to be very interested in the amount of profit your business can generate. Sure, you can get a loan or beg for money if you're not profitable. But the lender will be sure to charge a very high premium for access to that money. Why? Because you're not a sure bet. If you're losing money every month, chances of the lender being repaid look very slim. You're a risky decision, and not everyone will want to help you. However, if you can prove that your business is profitable, people will be throwing their money at you.
Profit matters because you want to be able to pay yourself a fair wage from all of the work that you are pouring into the business. If you're an owner, you likely started this business for a variety of reasons. Maybe you wanted more control over your schedule. Maybe you are passionate about the industry that you're in. Maybe you saw a market need that was going unmet. Whatever the reason is, I will bet that you didn't start your business to become a slave to it. Ask yourself, "who is serving whom"? Are you serving your business? Or, is your business serving you? Think of all of the hats you are wearing. Are you filling the role of CEO, janitor, line cook, marketing director and HR manager? If you are, what is the combined fair market salary of all of these jobs you are doing? Compare this number with the salary you are paying yourself. What is the difference? Many times the difference is the profitability of the company.
Profit matters because one day you will want to exit your business. Ideally, you'll want to exit by selling the business you've built over the years, rather than selling the equipment off piece by piece. Buyers typically don't want to buy a business that isn't profitable. There are exceptions, however. Let's say you have a business that is in distress and losing money every month. But, you have a highly skilled workforce that is loyal to you and hard to come by in today's environment. A buyer may want to consider your nonprofitable business solely to gain access to your labor and client list. But let me tell you a more ideal scenario. When you've built your business over the years and done "all of the things" that you need increase the valuation of your business, there could potentially be a bidding war for your company. This is the ideal scenario. This scenario is ultimately why profit matters.
