Unprofitable Business? What You Gain Running Your Small Business, Even If It Isn’t Making Money

It’s no fun running an unprofitable business, but it’s not wasted time.

 

Even if you’re not making money, and even if you’re losing money, you’re still making progress towards your final goal: Owning a large, profitable business. (The goal for 66% of millennials)

 

Here are a few reasons you benefit from owning your own small business, even if it’s still an unprofitable business at this time.

 

1. Skills

 

There’s no money but the experience is real. You’re learning skills you’ll need once your business grows. (Skills that fresh graduates will have only read about in the classroom.)

 

Marketing – In school you learn that billboards are still a good way to market your products. Unless you’re AirBnB or Uber, this isn’t the case! (As a side note, many big VC-backed companies are unprofitable) You get to test out what’s really working in marketing today. Facebook ads, Amazon PPC, Google, Shopify, etc., etc. With your unprofitable business, you’re learning much more than the college student taking an outdated ‘marketing’ class.

 

Management – You learn to hire, delegate tasks, give feedback, deal with emotions, and make the firing decisions. Working with $5/hour freelancers (who won’t sue you for ‘wrongful discharge’!) is a great low-risk bootcamp for new managers. Even if the majority of your cash flow goes to paying salaries, you’re still learning how to be ‘captain’ of your own small ship, your business.

 

Negotiation – Your tight finances force you to negotiate. Learning to negotiate 5% off your purchase price for small orders today prepares you to negotiate when placing much larger orders in the future. Once your business is profitable, the path of least resistance is to negotiate less and accept prices that suppliers give you. Your time running an unprofitable business will always remind you that the ‘price’ is never the lowest price someone will accept. Over a business career, negotiation skills will save you thousands or millions of dollars.

 

Cash Flow Management – You have no cash cushion. You’ll learn how to time re-orders, negotiate net-90 terms with suppliers, take on small business loans, and restrain your own spending in order to avoid hitting $0. This is great once-in-a-lifetime practice because once your business is safely cash-flow positive, the pressure is off and it only gets easier. You really know how to manage your cash-flow after running a business that’s not making money!

 

Accounting – Whether your business is unprofitable or profitable, you still build need to build your Profit/Loss statements, calculate your ratios, and ensure everything balances to the penny. Counting negative numbers and seeing red (-) ratios in Excel isn’t so fun, but it’s still an education in accounting.

 

2. Financial Benefits

 

Yes, there financial benefits when running a non-profitable business.

 

Expensing – You’re running at a loss, but at least you can write off all expenses related to your business for tax purposes. By expensing transactions correctly against your other income for the year (income from freelancing or from your day job) you’ll avoid paying income tax on all of the money you spent investing in your business. You don’t turn a profit, but you just decreased your tax liability.

 

As Benjamin Franklin would say “A penny saved is a penny earned.”

 

A Lean, Scalable Core – You won’t sign up for recurring SaaS products, buy expensive marketing services or hire extra employees without knowing exactly how every expense leads directly to revenue, ROI and profits. Being forced to start lean keeps you from signing up for recurring expenses that don’t actually help your business. Small expenses like this add up and can make a profitable business much less profitable than it would have been had these tools never been purchased in the first place.

Before buying any software, services, plugins, consulting, or coaching, consider if it will really help you achieve profitability, or if it will actually keep your business unprofitable for longer. Also remember that once your business IS making money, recurring billings directly effect your take-home pay, and they also hurt the valuation of your business if you ever try to sell it.

 

3. Mental Development

 

Calm Under Pressure – It’s stressful to run an unprofitable business at a loss. You can count the days until you run out of cash, when you won’t even be able to buy instant oatmeal anymore. But, once you become profitable and begin growing and hiring, ‘problems’ that frighten others won’t even phase you. You’ll always remember how you’ve solved much worse before.

 

Persistence – Once you make this work (You’re smart, you’re determined, you will.) you’ll hardwire the failure>persistence>failure>persistence>success ideology. Where others quit, you know how to persist for the long-term towards a worthwhile goal. You will see other new business owners whining and crying about how their business-model is ‘dead’, but you’ll know that it’s not the business that’s failing, but the owner who’s not willing to put in the time to make it work.

 

You Won’t Waste The Wins – The more you’re stressing about $25 today, the more efficiently you’ll leverage your big wins when they come. Memories of the past ensure that you fully engage your focus, sacrifice your time, and re-invest your profits when a large pile of cash lands in your lap. Rather than taking a vacation, you take a second to catch your breath and then double down your efforts. The frightening nightmares of running out of cash allow you to stay focused as you build your dream for the future into reality.

 

Closing Thoughts

 

Any business that requires even $1 of investment will be unprofitable for some period of time.

 

This is normal and isn’t a signal that you’re failing. Many Silicon Valley companies raise (and spend) millions of dollars ‘pre-revenue’ before their first order from a customer.

 

Running a small, unprofitable business is hands-on bootcamp for running a large, profitable one.

 

As you work, hustle, eat microwaved oatmeal and cold call, trying to turn a few thousand dollars into a profitable business, remember the parable of the ‘Talents’ from the Bible. (This lesson stands whether your Christian, religious, or neither.)

 

In the parable, wealthy merchant leaves home for a few years. He leaves a small sum of money with his servants. Upon returning, he finds that one of his servants has carefully managed his money while he was away, doubling its value.

 

“Well done, thou good and faithful servant: thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord.”

 

Your business is small, unprofitable, and takes all your free time. Tend to it faithfully anyway, as if it was a massive company. Show that you deserve to be put in charge of many things. (Many dollars, many people, many assets.) Eventually, like the servant when his master returned home, your faithful stewardship will be recognized and rewarded.