Effects of Profits and Losses on a Small Business Start-Up


1. Businesses have two destinies: to make profits or to suffer losses.

A business that is in the middle of this will soon descend to loss if care is not taken. A business venture is often set up for profit-making, but they soon degenerate to losses where things go wrong against plans. No one plans to go into a business to incur losses, but then they happen and the entrepreneur has to grapple with the results of his decisions or the impact of other businesses and the market upon his own business. Things go fine when a business makes profit and things go very awry when a business records continual losses. Let us examine the characteristics or effects of profits or losses on a business venture.

Effects of Profits and Losses on a Small Business

2. Businesses experience growths and expansions when they make profits.

This cannot be elaborated enough. People are empowered to buy anything they desire and get things otherwise impossible done when they have the money; so businesses are empowered for expansions and growths when they make profits. Consistent business profits allow organisations to invest in related ventures with a view of generating more interests, and it may even encourage a business to invest in foreign markets with a view to making huge profits from new and emerging markets.

3. Business profits make everyone happy and sustained.

The only way to keep employees coming to work is to keep them happy by paying them in time; when you pay your employees their monthly salaries and allowances or bonuses in time, then they get more encouraged to work in your organisation. Even business owners, shareholders, directors and managers, and customers work more if the business makes profit that can sustain them all, or there won’t be a reason to come to work again. So business profits improve the livelihoods and standards of living of everyone within an organisation.

On the other hand, business losses have negative effects on a business organisation as can be seen hereafter.

4. Business losses affect the sustainability of staff and operations.

When a business incurs losses on a consistent basis and there is reduced demand for its products, it may be forced to take drastic measures to cut down on its losses. In this case, an organisation may lay off its workers, and sell off its equipment and other assets to offset the debts it has incurred or to take care of employees’ benefits. Losses affect both the workers and the management and the business itself, and it is the worst thing that can happen to both staffs and management at the same time.

5. Business losses may cause a bankruptcy or a fold-up.

The last option open to a losing business may be to declare bankruptcy. Insolvency occurs when a business organisation cannot pay its staffs or maintain its assets and operations equipment, and when it is also impossible to pay its creditors. Then declaring insolvency or bankruptcy is the result of such inabilities, and this is when you see a company selling off its assets to offset debts and settle creditors, and when law courts come in to arrange for litigation settlements. All these occur when a business or company fails to make profits, and the lack of profit is the only thing that can kill a business faster than a bad employee or other market forces can do.

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