Regardless of what type of business you own and operate, there is one thing that must happen at all times, and that is that your business is profitable.
Now there are two types of profit; there is ‘Equity’ and then there is ‘Money’.
Every great and big corporation was built with a focus on equity growth rather than money, but even if profit is not the thing that you are going after right now, your company will always need to have money (aka cash flow) to grow and build its equity, because companies are always limited by their cash flow.
Obtaining cash flow while a company is focusing on growth mode is possible either by getting an investment or by opening a line of credit.
Small business owners in my experience always opt in for option B (line of credit) rather then taking on a partner/investor.
Beware: A Line of Credit is a double-edged sword.
Knowing whether your business is profitable should really have been pretty simple: cash in bank with all bills paid = profit.
It probably is so, until the business gets a Line of Credit.
A Line of Credit is an amazing thing. It enables new possibilities in our business and it gives the business owner back their peace of mind to actually attend to the growth possibility.
But that is also the problem, at times we get so into the new growth opportunities enabled by a Line of Credit that we forget to keep an eye on profitability. What ends up happening at times, is that we wake up when the line of credit is maxed out. We are faced with the reality of a profitless business along with a debt hole.
So a word of caution to business owners: Yes, do take that line of credit but make sure that you hold the sword on the side so that sword works for your business, not against it.
P.S. As a journey partner for small business owners, I keep a metrics based focus on the business, even when business owners get emotionally tied into their business and its growth. I highly recommend every small business owner to have such a person by their side (aka CFO).
P. P. S. Amazon is a great example of a company that is almost not “money” profitable but the company profits tremendously in equity every year. That is the reason why their stock price stands at a P/E ratio of 412.39, because cash profit is not why people buy the stock.