Profits

Maybe I’ve mentioned this before, maybe not. But the worst thing you can do in starting a business is to think that making some money will fix whatever problems you have. Money will delay the problems to another day in most cases, but simply “banking some profits” is rarely much more then a short term cure.

Why? Well, for starters, if you are starting a business then the first profits you make are simply being used to fill in the hole that was created in starting the business. I used to have a business partner that didn’t understand this; he thought that the “hole” which was created using other people’s money could just sit there without us trying to fill it. The hole doesn’t go away. Secondly, assuming you have made enough money to fill the hole then you can rest assured that your newfound profits will invariably be in the wrong place at the wrong time. The moment you write your first dividend check will be followed soon after by a dire need for infrastructure improvement, a new employee, or a costly order.

But that’s not really the point of this post. Rather the point is to illustrate how simply making money does not solve the REAL problems your business faces. I’ve been involved in partnerships that were so beyond repair that the only reason we kept the business going was a belief that once we made some money, everyone would bury the hatchet and we’d be happy again. All this did was keep a failed partnership together when it should have been dissolved before our friendships were irreparably destroyed. I’ve been involved in partnerships that leaned on the idea of profits = success, yet when we finally started making money we realized that the amount of work required to keep our momentum was increasing at a faster rate then our cash flows. I’ve also know people that were involved in businesses that ate themselves from the inside out; they made profits reinvested the money in their companies just because there was money to invest and the next thing they knew the growth and management of said growth was destroying their business.

Profits have to be treated as one lever in the machine of your business. Like all the other levers – office space, employees, processes, etc. – the profit lever has to managed, monitored, and manipulated not for MAXIMUM leverage but for the RIGHT leverage.

Money doesn’t solve your problems. In fact, it may create more (or different) problems then the ones you already had. Keep in mind that profits are a PART of your business and that all the parts must get along for your enterprise to truly be successful.

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