*Note: This article was written before the 25% tariffs were announced.
Unfortunately, more and more businesses showed an overall loss for the 2024 calendar year compared to past years. Having personally reviewed many 2024 profit & loss statements this 2024 tax season, it is apparent that annual net losses are running rampant.
I am referring to businesses with annual cash sales at amounts such as $250k, $500k, $1.5m, $3m, up to $10m of annual sales. Just because a Company has high sales, it does not mean a Company is profitable.
There is a lot of truth to the statement: -Sales is Vanity, Profit is Sanity, and Cash is King-
There are some primary reasons for the increase in annual net losses:
- Dramatic economic inflation and a rise in supply costs.
- The rise in interest rates.
- The overall volatility of the stock market.
In our review, we see that many business expenses have increased 10 – 30% or more over the last couple of years (as shown in their annual profit & loss statement), but oftentimes the business owner does not raise their prices in proportion to the added expenses. As a result, these companies will have an annual loss by default
It seems simple, but many business owners get too focused on working in their business, instead of on their business, and do not take a step back to review their profit & loss and profitability.
It’s also common for business owners to believe they cannot raise their prices, when they actually can.
Here are some real case examples by similar businesses, and a comparison of those who have kept their prices the same, vs. those who raised them:
From years of personal experience managing a CPA firm:
- I’ve seen construction companies with annual net losses; I’ve seen construction companies with annual net profits.
- I’ve seen business owners who sell vehicles that have annual net losses; I’ve seen business owners who sell vehicles that have an annual net profit.
- I’ve seen restaurants with annual net losses; I’ve seen restaurants with annual net profits.
The comparison above shows that it is possible to make the changes that are needed to become profitable, but it takes a change of mindset (and humility) to receive business advice.
PLEASE review your profit & loss year to date, and if your business has a net loss, know the time is now, not later, to make changes.
Large Corporations change their prices often, and sometimes daily, so why does the small business owner struggle to do this? The small business owner must be confident that they are valuable, review their profit & loss, and then do whatever it takes to make a profit.
If you would like coaching on making profitability changes or want to discuss your P&L, please feel free to reach out. We have assisted many business owners with business advice to become profitable and continue to thrive.
Thank you for reading this article.
Josh Simpson, CPA
The Veteran CPA