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Not true. You can remain profitable forever, without growing your revenue. For example, a business with 10 million in revenues and 9 million in expenses can exi

Not true. You can remain profitable forever, without growing your revenue. For example, a business with 10 million in revenues and 9 million in expenses can exist 'forever'. They don't need to grow their revenue. Of course, if your revenue is not growing, it's a bad sign.

Xylakant 8y ago
A sustainable business can have 10 million revenues and 10 millions expenses. Expenses contain the salaries of all people employed. As long as the salaries make for a good living for everyone involved that's good enough if you don't have investors that want to extract profits. You'll still want a bit of a rainy-day fund to cover unexpected losses and you'll want sufficient growth to cover inflation. Not growing beyond that is not necessarily a bad sign, it may be a conscious decision. Growth brings its own kinds of problems, stability has its own appeal.
- nybble41 8y ago
  A business without any capital investments (tools, inventory, human capital, your "rainy-day fund") isn't much of a business at all. As long as you're tying up capital in the business you need to justify that investment by turning an accounting profit; otherwise the business is losing money compared to what could have been earned by investing the same resources in some other venture. Economic profit, which factors in opportunity cost, does tend toward zero. A sustainable business can exist with no economic profit or loss, but the accounting profits would be in line with standard market rates of return. Of course, if the business's investors are also its employees (as is often the case for small, privately-held businesses) then any accounting profits can be distributed in the form of salaries... but in that case the investor-employees will expect higher salaries than they would receive as mere employees elsewhere. Keeping up with inflation does not count as growth. Growth or decline should be calculated in terms of purchasing power (inflation-adjusted dollars), not raw currency.
  - Xylakant 8y ago
    > but in that case the investor-employees will expect higher salaries than they would receive as mere employees elsewhere. Is that necessarily so? They can just as well decide that being in control of their work justifies a lower wage than market rate. After all, it’s their business.
    - nybble41 8y ago
      As usual, the caveat "all else being equal" applies. They should expect a higher salary than they would receive elsewhere in a position with a similar degree of job satisfaction and other non-salary factors. But you're right, a lower salary / return on investment might be acceptable in exchange for a greater degree of control. The same goes for non-employee investors, of course; one might hold shares in a company (or more commonly, a co-op) not for any direct financial benefit but rather as a way to influence how the organization is run.
jcelerier 8y ago
> For example, a business with 10 million in revenues and 9 million in expenses can exist 'forever' but that's what I'm saying : at equal amount of work, expenses keep increasing in time.
- ric2b 8y ago
  You have a misunderstanding of inflation. The company can increase it's prices at the pace of inflation and in real terms nothing will change.

Xylakant 8y ago

A sustainable business can have 10 million revenues and 10 millions expenses. Expenses contain the salaries of all people employed. As long as the salaries make for a good living for everyone involved that's good enough if you don't have investors that want to extract profits. You'll still want a bit of a rainy-day fund to cover unexpected losses and you'll want sufficient growth to cover inflation. Not growing beyond that is not necessarily a bad sign, it may be a conscious decision. Growth brings its own kinds of problems, stability has its own appeal.

nybble41 8y ago
A business without any capital investments (tools, inventory, human capital, your "rainy-day fund") isn't much of a business at all. As long as you're tying up capital in the business you need to justify that investment by turning an accounting profit; otherwise the business is losing money compared to what could have been earned by investing the same resources in some other venture. Economic profit, which factors in opportunity cost, does tend toward zero. A sustainable business can exist with no economic profit or loss, but the accounting profits would be in line with standard market rates of return. Of course, if the business's investors are also its employees (as is often the case for small, privately-held businesses) then any accounting profits can be distributed in the form of salaries... but in that case the investor-employees will expect higher salaries than they would receive as mere employees elsewhere. Keeping up with inflation does not count as growth. Growth or decline should be calculated in terms of purchasing power (inflation-adjusted dollars), not raw currency.
- Xylakant 8y ago
  > but in that case the investor-employees will expect higher salaries than they would receive as mere employees elsewhere. Is that necessarily so? They can just as well decide that being in control of their work justifies a lower wage than market rate. After all, it’s their business.
  - nybble41 8y ago
    As usual, the caveat "all else being equal" applies. They should expect a higher salary than they would receive elsewhere in a position with a similar degree of job satisfaction and other non-salary factors. But you're right, a lower salary / return on investment might be acceptable in exchange for a greater degree of control. The same goes for non-employee investors, of course; one might hold shares in a company (or more commonly, a co-op) not for any direct financial benefit but rather as a way to influence how the organization is run.

jcelerier 8y ago

> For example, a business with 10 million in revenues and 9 million in expenses can exist 'forever' but that's what I'm saying : at equal amount of work, expenses keep increasing in time.

ric2b 8y ago
You have a misunderstanding of inflation. The company can increase it's prices at the pace of inflation and in real terms nothing will change.