Profit or Wealth?: Simple Rules for Sustainable Business Growth

By Ruth King

“A critical handbook for the beginning entrepreneur or financially frustrated business owner.” —Kevin G. Armstrong, author of The Miracle Manager

Many business owners just worry about profits and ignore business wealth building, but a business needs both. Without building wealth, the business can still go bankrupt. Unlike books which solely focus on building personal wealth, Profit or Wealth? gives business owners clear and simple rules to build business wealth . . . which can translate to personal wealth.

Profit or Wealth? takes a unique perspective on what really matters in financial statements. Percentages don’t matter. Dollars do. For example, business owners discover why looking at net profit percentages or gross margins can get them in trouble. By following the ten rules of profit and ten rules of wealth in this book, business owners can avoid the mistakes that trip up others, and build a solid, sustainable future.

• Language: English
• Publisher: Open Road Integrated Media
• Release date: Jul 7, 2020
• ISBN: 9781642799408

Ruth King

Profit & Wealth Guru Ruth King has a passion for helping businesses build wealth, achieve their goals, and stay profitable. She holds an MBA in Finance from Georgia State University. Ruth is the author of two #1 best-selling books, Profit or Wealth? and The Courage to be Profitable. She is a frequent podcast and radio guest discussing how to demystify the financial side of businesses. Ruth resides near Atlanta, Georgia.

Book preview

INTRODUCTION

Which do you want, profit or wealth?

The answer, as you will discover in this book, is that you need—and should want—both. From a business perspective, you cannot have wealth without profits. Many books have been written about how to generate personal wealth. This book deals with business wealth. If your business is to survive and give you something worth selling or passing along to the next generation, you need both business profit and business wealth.

The purpose of your business is to profitably take care of your customers. Taking care of your customers is not enough. If you don’t earn a profit, you will eventually go out of business, draining what wealth you may have had before you started your company.

Business profit is built through the profit and loss (also called P&L) statement. Business wealth is built through the balance sheet. Many small business owners only pay attention to building profit and ignore the wealth-building balance sheet. You have to pay attention to both for long-term survival.

I have been helping small businesses grow profitably and build wealth since 1981. Over the years I have witnessed and helped many companies who got into trouble financially. They got into trouble because they grew and never looked at a profit and loss statement or a balance sheet. They had no clue what their expenses really were and whether the company was making a profit. The only thing they knew was if they had cash in the bank. These owners grew without paying attention to their financial statements. Only when they got into cash trouble did they try to figure out what went wrong.

Often these owners are shocked that they are losing money and have been for years, without knowing it. How can this be? By paying attention only to the cash that is in their bank account rather than whether the products and services they produce actually are profitable.

Growth masks losses. As long as there is increasing cash in the bank from increasing sales, you are lulled into a state of bliss. Then, when growth stops or revenue decreases, the reality of no profit comes crashing into your life. You can’t meet payroll or pay a vendor or take discounts on payables. You can’t imagine what is wrong. What’s wrong? Sales that are not profitable for many years.

Here is Alex’s story:

Alex was tired of working for his current employer. He thought he could do better and started his own business. The business rapidly grew to over $3 million in five years. Unfortunately, Alex never looked at his financial statements and relied only on the amount of cash in the bank to determine how well he was doing. He started having cash flow problems because of a project that went highly over budget and ate cash; then he got help analyzing his financial statements. Alex discovered that most of his projects were unprofitable. He was turning cash—that is, the payments for a finished project paid for start-up of the next project. As long as the company grew, there was always sufficient cash to fund the projects. With this large loss, he was in a severe cash shortage, and the business may not survive.

Here is Peter’s story, another way profitable companies can go out of business:

Peter owned a very profitable business for more than 10 years. He built it from scratch to over $5 million in revenues. One week, three of the company’s major customers filed bankruptcy, leaving Peter with over $1 million in receivables that he couldn’t collect. Peter had already paid his suppliers and employees for the work that was billed. So, the company lost the revenue and paid the expenses against the revenue. Over the years, Peter hadn’t saved enough cash to cover the $1 million shortfall and expenses, even though his company was very profitable. This caused severe cash flow problems that the company couldn’t recover from. Peter’s company went out of