Written by: Tuesday P. Brooks, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Most of us would naturally love to make lots of money. But the desire to get rich isn’t necessarily what motivates many small business owners to start their own companies. Often, we’re driven by a sense of purpose or a mission greater than ourselves. Sometimes we want to build a legacy by creating a successful family business that we can pass down to our kids. Or maybe we just want to escape the rat race and do something we love for work.
The reasons are as numerous as the stars in the sky, but at the end of the day, your business still needs to turn a profit. If it doesn’t, then, in truth, it’s just a hobby you’re investing in – and a super expensive one at that. So, with that in mind, let’s talk about why it’s crucial that you, as the head of your business, maintain a profit mindset. This is what may happen if you don’t:
You’ll Feel Like You’re Constantly Struggling
If you disregard profitability, over time you’ll probably start to feel overwhelmed – both professionally and personally. (After all, the professional bleeds into the personal.) Because if your business isn’t bringing in enough money, it’ll be a constant battle to figure out how to pay all the bills – talk about stressful! And forget about expanding your company – there won’t be enough funds to do this.
This is no way to live. It isn’t healthy for you, your team, or your family. This constant financial strain will eventually wear you down, negatively impacting your mental, physical, and emotional health, and we can’t have that.
You’ll Probably Start To Run Into Tax Issues
If you keep reporting business losses or nominal profits, the IRS and state tax agencies will likely start to give you the side-eye (especially after year three). The IRS has a certain expectation of how your business should perform based on metrics that it keeps for all industries and businesses. If your company isn’t living up to these expectations, and if you continue to submit tax documents that don’t show growth, it may very well trigger an audit. Plus, it’s not uncommon for the IRS to send letters requesting verification of certain expenses if they seem out of proportion to one’s business sales.
No one wants to live in fear of a tax boogeyman who lurks around every time they submit a tax return. It’s much better to keep your company in the black so the IRS takes no notice of it.
You’ll Potentially Get Disqualified For Funding
Chances are good that you’re interested in growing your company. But what investor or lender will want to take a risk on a business that isn’t reasonably profitable? They’ll question if you’re qualified to use their money because they don’t see any (or enough) growth. Lenders are looking for promising profitability prospects from their borrowers. They want assurance that you’re capable of using your own money properly (before they let you borrow theirs) and that there’s no risk to them of non-repayment of the loan.
And keep in mind that you’re going to have to repay that loan whether or not your company stays in business. Yet another reason to keep profitability at the forefront!
You’ll Run Into Retirement Problems Down The Road
Do you realize that if your business doesn’t report much profit, then you’re not contributing much (if anything) to your social security for the future? This is because the income tax you pay being self-employed goes towards social security and Medicare. If you’re not putting money into that or another retirement plan, this will be a serious problem when you get older and the money isn’t there for you to retire. (To check how much you’ve contributed so far, visit ssa.gov and log into your online account.)
Avoid living in regret when you’re 70 and still have to work to make ends meet. Push your business to continually grow its profitability so you can save for your future retirement.
You’ll End Up With A Dream Unfulfilled
Face it. If your company isn’t currently profitable, there’s only so long it can be sustained before you’ll have to throw in the towel. Eventually, the bottom will fall out. We know this happens because we always hear the statistics about how many small businesses fail. If you reach this point, you’ll have to walk away from a dream that was so dear to you, a labor of love.
But it’s okay! After reading this article, hopefully you realize the importance of prioritizing your company’s sales and profitability. No doubt, you can still carry with you the mission, legacy, and love behind the business that you started and run. But, no matter what, never forget that it needs to be profitable to succeed and expand. Keep your eyes on the prize – profitability – because you simply can’t afford not to!
Tuesday P. Brooks, Executive Contributor Brainz Magazine
Tuesday P. Brooks, MBA is a business owner, educator, trusted tax & accounting advisor, and fierce champion of small business. Unwaveringly devoted to financial fluency Tuesday’s mission is to accelerate the profitability of financially-sound, women-led companies that employ across the U.S. As such, she works tirelessly helping women founders gain the confidence to take a leap of faith towards growth so they can tap further into their joy of business ownership more easily.
