Home > Uncategorized > Since when was making a loss a good thing?

Since when was making a loss a good thing?

If making money was ever considered an inappropriate goal, it was probably never as strong an opinion as it is now.  With a huge focus on issues like environmental sustainability, and social and ethical obligations – business owners could be forgiven for thinking that making a profit is very much an incidental bonus of being in business – if not a rather evil outcome!   And yet, how practical is that really?  Should profit be a key goal?

I have just finished a ‘community sponsorship’ project for a not-for-profit.  They are much more concerned with member development and creative achievement than making money.  However, even in this type of organization, there is an understanding that if there is no monetary surplus at the end of a project, the ability to finance the next one is severely at risk.   Their activities in the community are likely to cease if they are unable to make a ‘profit’.  Some not-for-profits recognize this by referring to themselves as ‘not-for-loss’.

So if the not-for-profit sector understand the need to make a financial surplus, isn’t that need just as great, if not greater, for businesses?  Proponents of the environmental sustainability cause are quick to point out that businesses will save money and gain more clients by implementing sustainability measures.  But that is in fact, not always the case.  Sometimes to be ‘green’ actually requires significant investment, and the increase in clients may not eventuate, or may take a long time to recover that investment.  And if a business is investing in ‘green’ initiatives, sponsoring community events/organizations and providing development beyond the actual role requirements for their staff – and as a result they lose money and are unable to continue – there is a different sustainability issue.  The issue of sustainability of the business.

In reality, few entrepreneurs and business owners establish or buy a business purely to make money.  Most have an interest or even passion for the industry.  Many have seen a gap in the market they are excited to fill.  Most are involved in businesses closely related to their skillsets and professional training.  Many are happy to contribute and support their local communities.  In fact, a recent BNZ survey showed that nearly 60% of SMEs currently support local community groups or charities.  That support is likely to directly reduce their profits.

Any organization that cannot regularly create cash surpluses or profits of some kind, is going to struggle to survive in the medium to long term.  Does that mean though, that businesses should have profit as a long-term goal?  Absolutely.  Does that mean it should be at any cost?  Definitely not.  When the concept of the triple bottom line was first marketed many years ago now, the whole point of that reporting process was to balance out a number of business or organizational outcomes, including financial sustainability.  Kaplan and Norton’s Balanced Scorecard is another method of analysis and reporting that endeavours to look at a range of goals.

For most SMEs, a profit level should be identified as a key goal, in my opinion.  Most of the other issues will be factored in to how that profit is achieved.  And most SME owners will understand the medium to long term implications of community support, developing staff and impacting the environment.  Their ability to do it all at once may be less than they, and the proponents of these issues, might like.  Having ‘small steps’ goals can balance out these worthy initiatives with the need to remain financially viable.

Large businesses and organizations sometimes face a greater pressure, with shareholder or stakeholder pressure to perform financially on the one hand, and public backlash to high profits at the perceived cost of the environment, people and community on the other.  The issues aren’t very different, but the scale is.  That’s a balance that Governments, Boards and CEOs must grapple with.

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