There are three possible financial outcomes for your business, each with their own challenges:
- Make a profit
- Breakeven, or
- Make a loss
Making a profit
Clearly, this will be your goal. If you make profits – and taxation will never eat up all your profits – this will generate cash resources that can be accumulated in the business or used to finance working capital or other investments in equipment.
Also, importantly, profits provide the means to repay loans and reward shareholders for their investment in your business.
Profits are associated with buoyant trading conditions and provide prima facie evidence that all is well.
Breaking even in this context usually means that revenue/sales are equal to all costs. No profit, no loss.
It’s the equivalent to marking time and equates to any activity producing no additional resources for your business. However:
- You can keep your team together
- You can maintain contact with customers and suppliers
- Your bank will be happy as they will see that your cashflow in’s and out’s are matching.
Many businesses during the current COVID disruption would be delighted to breakeven. Those that fail will experience the last option…
Making a loss
Losses occur when costs exceed revenue. Losses can be funded for a period of time but will be terminal for a business if, and when, cumulative losses – less any recovered taxation – exceed cash reserves or the ability of a business to borrow to cover a growing deficit.
Business owners who find themselves in this latter position should seek professional help. There are options including steering the businesses back towards breakeven/profitability.
Act early. Don’t wait until you have exhausted yourself and your remedial options. Pick up the phone, we can help.