Profitable businesses are so last decade, right?
After all, Twitter doesn’t make a profit. Salesforce has lost over half a billion dollars the past few years. Amazon went about 20 years without ever showing a profit.
The truth is, there’s a lot more to these companies’ business models than simple profits and losses, and for Salesforce and Amazon in particular, their revenues are rapidly growing every year. Explosive revenues can change the game on how a business needs to make money.
For your business, unless you have people investing hundreds of millions (if not billions) of dollars, you’re probably going to need to make a profit sooner rather than later.
But when does that happen?
The answer depends on a number of different factors. Before you can even define any sort of ‘when’, you need to figure out what profitability means for your business.
What Profitability Means for You
Technically speaking, your business is “profitable” as soon as its revenues exceed its expenses. But let’s say you left a good paying salary job to start up a business. In that instance, you might not consider yourself profitable until you personally are making as much if not more than you were at your previous job.
Or maybe you have investors, and you don’t consider yourself profitable until they’ve seen some return on their investments.
If you don’t have investors, and you’re fine with just reaching that base-level, “ramen profitability”, that’s not a bad starting goal, but you may want to build from there.
Whatever your benchmark is (and it’s very important to have benchmarks in place), you’ll want that in mind before you start down the road to profitability. And make no mistake….
Profitability is Important
There’s probably a number of different reasons why you started your business. It could have been because you wanted to be your own boss or because you realized a certain product was lacking from a specific industry. Perhaps you started a business out of necessity when you found yourself unemployed. Perhaps you hoped you could make the world a better place. Quite probably it is a combination of these and other things.
It’s fair to say you also probably hoped to make some money in the long run. Even if money is the last thing on your mind, at the end of the day, to keep your business operating at its best, you need to generate profits.
Entrepreneur Magazine once published an article that said “profits aren’t everything, they’re the only thing”. They go on to detail that you should have a plan, and that plan should revolve exclusively around you making money until you turn a profit. I tend toward the “profit isn’t everything and there are many ways to define success” school of thought, however, your business can’t last forever without it.
For anyone who has watched Shark Tank, you know that time and again, the first questions asked by the investors are:
- What’s your profit model?
- How much revenue do you have?
- What are your sales?
And they ask this because they know a business that’s not making money is not going to be around for that long.
So how long do you have?
When Should My Business Be Profitable?
Getting back to the original question, it’s something that in many ways, you’ll have to decide. For some businesses, people will say you can expect to lose money in the first year, squeak by in the second, and start building up some profit in the third. Of course, if you’re taking loans or investments, that adds a lot more to manage.
The answer to the question might actually be another question:
How long can you go without making a profit?
Think about it. What’s the longest your business can stay afloat without bringing in some real revenue? If you can answer that, then you at least have a starting point to work from.
And from there, there’s some serious planning to do. I can help with that part. Check out my book Business is ART, download a free business plan template, or contact me directly.