Starting A Business
Volume X
What Should Be The Yearly Objective?
People who have never owned a business, never been financially responsible for a business personally, always have a rosy and romantic opinion of what the yearly objective of any business should be. Is that surprising? There is only one objective for a business, how that objective is attained differs according to the philosophy of the top executive and its board of directors or the owner of the company, if it's an S.M.E. In order to stay in existence, a company requires certain essentials. Without those, there isn't much left to be called a business of any kind. No matter what is the type of corporation, the objective remains the same. Yes, even a "Not-for-profit" corporation, a charitable organization or a foundation. The objective is the same: Stay in Business. For that to happen, all businesses need one thing at the end of the year, after all is said and done, after they have paid everything and everyone, they still need to have sufficient funds left at the end of the year beyond the "breakeven point". They need to start the new year in the black.
In this series on "Starting a business" we have covered the essentials required for a successful launch and development of a business in general terms. Those essentials are true and valid for all types of businesses of all sizes. Let's recap the main essentials covered:
Business Objective is not to be confused with the Mission Statement of a company, nor its Philosophy of Operation. It is simply a mathematical and financial objective. For a business to survive from one year to another, it must generate enough funds to sustain itself. Even a charitable organization or a "Not-For-Profit" corporation. If the business stops paying its employees it will have no one working and producing what is needed to be sold. Even if the entire staff is made of volunteers, and the goods are donated, there are still expenses that must be paid, therefore funds are needed. In a Charitable organization, the Sales Team doesn't sale a product, but works to raise the funds from benefactors. The work is the same, sell the idea that this organization and its objective and mission is worthy of the benefactors donation. It must raise more than it needs for a given year if it wishes to grow.
Just as any living thing, and in a very real sense a corporation is a living entity, albeit not an organic one, it needs to grow. It starts small and grows. When growth stops, decline begins. There is no such a thing as a stagnating business. If the growth curve is flat, someone is eating away at its market shares and sooner or later, if nothing is done, the changes of the market, will make the growth curve a decline curve. Change is the only constant in Business, stagnation is a indicator of inability to adapt to change, and if that occurs, there is only one way to go: Down and eventually out. No matter how many centuries you have been in business. The day you stop growing is the day you start declining.
The difference between a For Profit Corporation and a Not For Profit Corporation is the distribution of that profit. It is NOT the absence of a profit. The former distributes its profits to its shareholders (owners) as a dividend on a prorated basis to the number of shares of the company they own. The latter reinvests 100% of that profit back into the company so it can grow and do more of whatever it is the company does.
The objective is not to create jobs, or to do away with jobs, it is not to provide income for its employees or benefits packages to them. The objective is not even to provide a good or a service to fulfill a need of the community. NO. None of that are the objectives, they are the means to that objective. The only objective of any company is to Make a Net Profit. THAT'S ALL!!! Even if it is a single penny. Yes, everything else is a means to that objective, not the end. If a Company made even One Single Red Penny as a Net Profit, it is not in the Black. That means, it paid all its employees, including benefits and bonuses. It means it paid all its taxes, all its Interests and all its suppliers. It paid its rent and its utilities bills. It even paid for the Salary of the owners if they take one. After paying all of that, if there is still one penny left over, then the company made a net Profit. That profit can be reapplied to the company if it is a non-profit corporation or a foundation or charitable organization, or it can be passed on to the shareholders.
Without a net profit at the end of the Fiscal Exercise, the company will not be able to own up to its obligations. It goes without saying that a company who has a philosophy of caring for its employees and community is preferable to one who will cut and slash anything and anyone in the name of the almighty dollar. But it is also not just for philanthropic reasons a company must be a good company to work for and a great company for the community, it has its business advantage. Happy Employees spread the word of mouth about the company they work for in a good and positive way. They also take pride in what they do and generally believe in the product and service they bring to market. That pride and confidence radiates from the employees to people around them and in today's Mega-Social-Media world, it spreads at lightning speed. It is the best form of advertising. If the community benefits from the actions of the company on a social and philanthropic level, the goodwill this generates in terms of positive image and public relations translates into real dollars. The old myth of the mighty and Evil Industrial Barons who care nothing for anything or anyone but the net profit they make is just a myth in the feverish mind of populists left over from the YeYe era of the 60's who speak out of ignorance regurgitating facts gleaned from public records and spreadsheets they do not understand and never will. For every Evil Imperialistic Industrial Conglomerate who wish to dominate the world there are hundreds of thousands of small and medium enterprises who just want to grow and survive, making a modest profit by bringing to their community a needed product or service.
In this series on "Starting a business" we have covered the essentials required for a successful launch and development of a business in general terms. Those essentials are true and valid for all types of businesses of all sizes. Let's recap the main essentials covered:
- A good or service responding to a need in a given market. Make sure the need is not just yours or that of your friends. This is not the time to preach to the choir. If you are going to take a chance in business, make sure that what you are bringing to the market, people are actually willing to trade money for it. Your friends and Family do NOT constitute a Niche Market. Use them to test your product or service and get feed back but you must do your homework and research your market. If there is no market study or ready available Data, compile it yourself or hire a professional to do so for you. But you need to gather the Intelligence so you can elaborate your strategy and plan your business.
- A Team of experts to support your business. You must ensure that you are not the only one who understands what needs to be done. That would lead to disaster as you will have to be running every position your self. Each pair of hands need an independent, knowledgeable brain to direct them. You cannot be the only brain in your organization trying to direct every pair of hands. So make sure that you are delegating properly to a team leader that is an expert in his/her field and give them skilled people for them to lead.
- A sales Team to keep the business running. As we already covered in the previous volumes, without sales there is no funds, therefore no budget and consequently no business. Even if you are a single individual, like a consultant, with no employees, no boss, just little old you and your expertise. Even if you are so good and famous, you still need to sell yourself, your brand, your knowledge. Neglect that point and you will not stay in business beyond the next Brainiac in your field with more flair who comes to eat in your manger. You must be loyal to your clients, but they don't have to be loyal to you, unless you give them a reason to be and... keep reminding them of that reason. Just assume that your clients are afflicted with permanent Attention Deficit Disorder so you must constantly attract their attention so they don't forget you.
- The proper Location for your business. For most businesses, not just real estate and hospitality, the 3 "L" are of the utmost importance: Location, Location, Location. We covered that in Volume VII.
- Funds at the end of the Year to keep going: Last and not least, whatever your business is, it takes money to pay for everything you buy, the taxes you owe, the people who work for you and yourself. That is the required minimum. After all is said and done, at the end of the year, your company must have generated enough margin to cover all of the expenses, and to set aside enough for unexpected future expenses, re-investment and development (each type of business uses a different coefficient to compute how much, but on average plan for 10% of your gross sales as your total rainy day fund should be a minimum) . Those funds must be segregated, like a rainy day fund. But the total amount of all I just describe is the bare minimum. One penny less that that total and you are in the red. Maybe not technically, because you can always dig in the "Rainy Day fund" but you will be sooner or later.These funds constitute your operation budget. They will be required year in and year out, just to operate.
Business Objective is not to be confused with the Mission Statement of a company, nor its Philosophy of Operation. It is simply a mathematical and financial objective. For a business to survive from one year to another, it must generate enough funds to sustain itself. Even a charitable organization or a "Not-For-Profit" corporation. If the business stops paying its employees it will have no one working and producing what is needed to be sold. Even if the entire staff is made of volunteers, and the goods are donated, there are still expenses that must be paid, therefore funds are needed. In a Charitable organization, the Sales Team doesn't sale a product, but works to raise the funds from benefactors. The work is the same, sell the idea that this organization and its objective and mission is worthy of the benefactors donation. It must raise more than it needs for a given year if it wishes to grow.
Just as any living thing, and in a very real sense a corporation is a living entity, albeit not an organic one, it needs to grow. It starts small and grows. When growth stops, decline begins. There is no such a thing as a stagnating business. If the growth curve is flat, someone is eating away at its market shares and sooner or later, if nothing is done, the changes of the market, will make the growth curve a decline curve. Change is the only constant in Business, stagnation is a indicator of inability to adapt to change, and if that occurs, there is only one way to go: Down and eventually out. No matter how many centuries you have been in business. The day you stop growing is the day you start declining.
The difference between a For Profit Corporation and a Not For Profit Corporation is the distribution of that profit. It is NOT the absence of a profit. The former distributes its profits to its shareholders (owners) as a dividend on a prorated basis to the number of shares of the company they own. The latter reinvests 100% of that profit back into the company so it can grow and do more of whatever it is the company does.
The objective is not to create jobs, or to do away with jobs, it is not to provide income for its employees or benefits packages to them. The objective is not even to provide a good or a service to fulfill a need of the community. NO. None of that are the objectives, they are the means to that objective. The only objective of any company is to Make a Net Profit. THAT'S ALL!!! Even if it is a single penny. Yes, everything else is a means to that objective, not the end. If a Company made even One Single Red Penny as a Net Profit, it is not in the Black. That means, it paid all its employees, including benefits and bonuses. It means it paid all its taxes, all its Interests and all its suppliers. It paid its rent and its utilities bills. It even paid for the Salary of the owners if they take one. After paying all of that, if there is still one penny left over, then the company made a net Profit. That profit can be reapplied to the company if it is a non-profit corporation or a foundation or charitable organization, or it can be passed on to the shareholders.
Without a net profit at the end of the Fiscal Exercise, the company will not be able to own up to its obligations. It goes without saying that a company who has a philosophy of caring for its employees and community is preferable to one who will cut and slash anything and anyone in the name of the almighty dollar. But it is also not just for philanthropic reasons a company must be a good company to work for and a great company for the community, it has its business advantage. Happy Employees spread the word of mouth about the company they work for in a good and positive way. They also take pride in what they do and generally believe in the product and service they bring to market. That pride and confidence radiates from the employees to people around them and in today's Mega-Social-Media world, it spreads at lightning speed. It is the best form of advertising. If the community benefits from the actions of the company on a social and philanthropic level, the goodwill this generates in terms of positive image and public relations translates into real dollars. The old myth of the mighty and Evil Industrial Barons who care nothing for anything or anyone but the net profit they make is just a myth in the feverish mind of populists left over from the YeYe era of the 60's who speak out of ignorance regurgitating facts gleaned from public records and spreadsheets they do not understand and never will. For every Evil Imperialistic Industrial Conglomerate who wish to dominate the world there are hundreds of thousands of small and medium enterprises who just want to grow and survive, making a modest profit by bringing to their community a needed product or service.
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