Is your business Profitable?
I was speaking with a small business owner the other day about his desire to grow his business as he figured it was time to expand. I knew he was struggling with how to make this expansion happen as every time I asked how he would pay for the additional expenses he became quite irritated. Then he made the statement that “at least my business is profitable so I know I can make this happen”. That was when I knew he needed a reality check… as I already knew that he had not paid himself a paycheck from the business in over 2 years!
To make agriculture sustainable, the grower has got to be able to make a profit. Sam Farr
Later, I wondered how someone could define their business as “profitable” when they were unable to pay themselves a regular paycheck?
So, I started to create a definition of “profitable” that made sense to me as a business owner in hopes I could help with this person’s decision.
The Merrian-Webster dictionary defines “profitable” as it relates to business as “(of a business or activity) yielding profit or financial gain“. Also, there are references other than money such as “producing good or helpful results or effects” and similar things… but I wanted a definition of profitable related to operating a business and spending your life’s hours working at that business. Is it reasonable to think about it as simple as “yielding profit or financial gain” if you (yourself) are not getting paid?
For me, I think when I discuss the concept of being “profitable” it has to include the following.
A positive money balance when:
All standard overhead items are paid on-time including – rent or mortgage payments, all utility payments, and heating/cooling costs.
All debt payments (including credit cards) are paid on-time and resulting in a reduction in debt totals each month.
All inventory of product sold can be replaced without incurring additional debt (again this includes credit cards).
Finally, at a minimum, each employee is paid a paycheck at a reasonable and customary level (this includes the owner of the business).
If all these criteria are met… then, the business can be qualified as “profitable”