How normal is it for a company to operate without making a profit?

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Soldato
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Just wondering, really. I work in tv/film post production and it seems like the majority of companies (even bigger/well known ones) often don't make any profit. I just wondered how that compared to other industries.. surely it's not commonplace :confused:

Having said that we know that the banks are experts in making money and even some of them make losses (e.g. RBS).
 
I see a lot of companies that make losses or just very small profits. Mind you, I also see plenty that make a truckload. Or sometimes there will be one company in a group making loads of wonga and all the rest make losses. Or they have a foreign parent that finances all their loss making activities purely so they can have a presence in this country.
 
It's quite commonplace. As long as the company can pay both the wages of it's employees and it's creditors then it can continue to trade with impunity.
 
indeed - also film/tv companies are normally all about tax breaks.

More profits = more tax etc so if you company makes very little profit but directors can still take dividends/salary etc - it's all good.
 
booyaka said:
indeed - also film/tv companies are normally all about tax breaks.
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The tax treatment of some types of film company/partnership is horrendously complicated. And yes, they do often - particularly in America - use very questionable accounting methods which can render hugely successful films financial failures. One of the classic examples if Forrest Gump, which was a huge success but which on paper made no money. The writer of the book - Winston Groom - got shafted because he was supposed to get a share of the net profits, not gross. They had the balls to approach him for the rights to the second book that he wrote, and he told them to do one on the grounds that he didn't want to be involved in another huge failure.

booyaka said:
More profits = more tax etc so if you company makes very little profit but directors can still take dividends/salary etc - it's all good.
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Directors can't really take dividends from a loss making company. Dividends are not deductible for tax purposes, and you can only pay dividends out of distributable reserves, which generally means out of post tax profits.
 
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Vonhelmet said:
Directors can't really take dividends from a loss making company. Dividends are not deductible for tax purposes, and you can only pay dividends out of distributable reserves, which generally means out of post tax profits.
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If they (Directors) took advanced dividends which were not thusly realised through profit at the end of year, would they be able put it through as PAYE?
 
My dad's business made a loss a few years ago, really confuses me how it all works because surely

A) You can't "make" a loss, because then you have less than zero moneys left
B) If you do make a loss, as I say above, you have nothing left to pay anyone or any money left for operating costs.

Thus you'll go under
 
toshj said:
If they (Directors) took advanced dividends which were not thusly realised through profit at the end of year, would they be able put it through as PAYE?
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I imagine you'd have to, otherwise it could be an unlawful dividend and you'd struggle to get your accounts signed off.

But I'm not an auditor, so I can't be certain...
 
Jay794 said:
My dad's business made a loss a few years ago, really confuses me how it all works because surely

A) You can't "make" a loss, because then you have less than zero moneys left
B) If you do make a loss, as I say above, you have nothing left to pay anyone or any money left for operating costs.

Thus you'll go under
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This is why you have credit of some kind, like a bank loan. All companies are indebted to someone, even if it's just the shareholders who stumped up the initial capital.
 
Some companies rely on investment and their intellectual property rights and rarely if ever make an operating profit.

This is not unusual.
 
Jay794 said:
My dad's business made a loss a few years ago, really confuses me how it all works because surely

A) You can't "make" a loss, because then you have less than zero moneys left
B) If you do make a loss, as I say above, you have nothing left to pay anyone or any money left for operating costs.

Thus you'll go under
Click to expand...
Not if you already have some initial capital behind you, or you are able to gain credit from another source to cover the loss, like a bank loan
 
Jay794 said:
My dad's business made a loss a few years ago, really confuses me how it all works because surely

A) You can't "make" a loss, because then you have less than zero moneys left
B) If you do make a loss, as I say above, you have nothing left to pay anyone or any money left for operating costs.

Thus you'll go under
Click to expand...

You can make a loss from one period to the next. You could have money/wealth from previous quarters, then the next quarter make a loss. Or directors could put money in the company, then make a loss etc
 
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