Here is a very interesting note that came out of the last board meeting I had on Friday. The way I’ve thought about business is always to think:

“There must ALWAYS be profit…”

Now, not that I’m saying your company shouldn’t have a profit - but the real question here is:

“Does a YOUNG, GROWING company want to declare millions in profit right from the get go?”

The short answer is no.

Before you start disagreeing and thinking I’m an idiot, let me explain what I define as “profit” first. I’m talking about profit in terms of your tax statements.

Before I went into the board meeting, we had a financial “plan” that could potentially show a VERY large sum in profit at the end of 2008 and I was very happy to report it. I thought I’d get a “pat on the back” - but the reaction from the board was:

“Do we really want to have this much money just sitting around in the bank at the end of the year?”

Firstly - we have to pay a HUGE sum in taxes that goes bye bye.

Secondly (and this was the point that made me go AH HA!) - A shareholder would argue that wouldn’t the money be best used by the company and achieve a higher return on investment if it was invested by the company in it’s growth?

See, the whole point here is to create “share holder value” - money sitting in a bank account can (at max) make you 4-5%. But, a fast growing company may be able to invest that money in many places that could return much higher, such as…

- New product development
- Expansion into new businesses
- New hires
- Acquisitions
- etc…

So, think again if you’re a very young company looking to get acquired one day or even to build to that $100M a year business.

Rather than thinking “PROFIT” - think “MONEY TO RE-INVEST FOR FASTER GROWTH!”

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