It is a general inclination for people in business to think that they would see the company grow first before making substantial profits. What they don’t see is that they in fact need profits to sustain and run the business to grow in the first place. You need returns from what you have invested and spent on man-power, the infrastructure, marketing and other trade-related activities to pump it in for further growth.
Modern day business has seen the emergence of the terminology called Ramen profitability’. Ramen refers to the Ramen noodles, by the way, and implies that most start ups make just about the money that can pay the founders’ living expenses. And if you are business is surviving on the brink of a Ramen profitability, it means negligible profit as it negates the value of the company being created. Founders of the company must look at the fair market value to understand actual profitability.
It is not in wrongly defining sustainable profit to be at a stage where they are able to generate money that merely meets the basic operating expenses. In fact Ramen profitability buys you time and makes you independent of anything or anyone else for your survival as a company. And perhaps this sort of profitability is attractive only if it bears the costs of growing the company – going a step forward from simply sustaining your business.
And sustainability of business means moving towards growth. If you don’t move ahead, you are stagnant with the company shutting down. And if you keep selling at a loss, it may fail your business model. What you could do is forgoing few short-term profitability, provided you have a buffer to make up for the losses and approval of equity providers as one way to go.
A totally sustainable profit must aim at a long-lasting business. Growth and profitability arising thereby would have already taken you a level above merely meeting your operational costs. At this state you not only enjoy the dreamed profits, but also are capable of giving incentives and pay reasonably well to your employees who can really move your business ahead.
Sustainability of business depends on how you can generate a sustainable profit. Strive to grow beyond the small profits that help cover your basic costs. It may take some time for business sustainability, but once you are through the initial phase of establishing yourself and pouring your investments in, you are bound to recover them eventually.