My Unprofitable Profitable Business

Updated: Jun 27, 2019

As I looked back on the first year of running my first business I was proud of the profit I had made. I had worked hard to overcome numerous obstacles, and now my year-end revenue was more than my expenses.


I eagerly shared the news with one of my customers who was a successful, multi-millionaire entrepreneur.


He said, “David, how much did you make at your engineering job the year before you started your fight training business?”


“$60,000,” I responded.


“How much profit did you make in your business this year?”


“50,000”

“You haven’t made $50,000. You’ve lost $10,000”



At first, I accused him of not comparing apples to apples and being too utilitarian. But then my heart sank. I was paying myself with distributions and so the profit my business made was my entire compensation. And it was less than I had made before. Not only would my accountant later re-classify a portion of this profit as salary for tax purposes, but I had a serious economic value problem with my business.


Today I find myself repeating this story over and over with the companies we work with at Emerge Dynamics. The numbers are much larger, but the lesson is the same. We’ve worked with companies with hundreds of employees and nine figures of revenue whose owners aren’t getting the full picture of their return on their investment because of distortions in their financial statements.


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