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

UK-AL05 said:
Less tax then income tax =P, but then you have to pay tax when you take it out...
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There's plenty of ways to get around/lessen that.

The missus is an accountant and often tells me the ways people use, but to be honest I just zone out and OOH LOOK THAT DOG HAS BLUE EYES.
 
I run a small company in the south and the last couple of years we have made a loss. This is why most companies have a reserve fund for such eventualities. Also if you make to much profit you end up paying the dreaded corporation tax.
 
Spunkey said:
Eh? Wrong thread methinks.
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Uwe Boll :D
Financing

Boll's movies have often performed poorly at the box office in the United States. House of the Dead, which was budgeted at $12 million, made $5.73 million in its opening weekend,[8] Alone in the Dark, which was budgeted at $20 million, made over $5.1 million,[9] and BloodRayne, which was made for $25 million, made $2.42 million.[10] The least profitable commercial performance of his career was In the Name of the King: A Dungeon Siege Tale, which made barely $10 million worldwide at the box office on a $60 million budget.

Until the law was changed in 2005, Boll was able to acquire funding thanks to German tax laws that reward investments in film. The law allowed investors in German-owned films to write off 100% of their investment as a tax deduction; it also allowed them to invest borrowed money and write off any fees associated with the loan. The investor was then only required to pay taxes on the profits made by the movie; if the movie loses money, the investor got a tax writeoff.[citation needed]

In the DVD commentary of Alone in the Dark, Boll explains how he funds his films: "Maybe you know it but it's not so easy to finance movies in total. And the reason I am able to do these kind of movies is I have a tax shelter fund in Germany, and if you invest in a movie in Germany you get basically fifty percent back from the government."

Boll has received a lot of negative publicity regarding this funding method
Wiki
 
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Define profit. Are you talking about it in the economic or business sense?

Economics dictates that in theory if all markets work efficiently then all companies should break even.

Whilst this doesn't actually happen in reality a lot of the time, if you have enough companies in a market then the chances are the company is only breaking even. By this we mean it covers both fixed and marginal costs.

So included in this are things like costs of production, rent, wages, basically anything the company spends it gets back.

Basically yeah, in theory, nobody makes profit. In reality, whilst companies do, not all of them do, and it is not uncommon to break even.

kd
 
King Damager said:
Define profit. Are you talking about it in the economic or business sense?

Economics dictates that in theory if all markets work efficiently then all companies should break even.

Whilst this doesn't actually happen in reality a lot of the time, if you have enough companies in a market then the chances are the company is only breaking even. By this we mean it covers both fixed and marginal costs.

So included in this are things like costs of production, rent, wages, basically anything the company spends it gets back.

Basically yeah, in theory, nobody makes profit. In reality, whilst companies do, not all of them do, and it is not uncommon to break even.

kd
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Silly question, but what's the point of a business? I suppose it goes against people believes that it is to make money. Are we all suppose to contribute to society?
 
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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Profit is just an accountancy concept, it's not really a thing i.e. a company won't be able to show you their profit lying in a bank account somewhere. Cash on the other hand is real, a company could show you how much cash they have at this moment in time (including overdrafts), and if they do run out of cash then they are indeed bankrupt.

When judging the health of a business remember:

Balance Sheet=Vanity
Profit&Loss=Sanity
Cash flow=Reality
 
scorza said:
Profit is just an accountancy concept, it's not really a thing i.e. a company won't be able to show you their profit lying in a bank account somewhere. Cash on the other hand is real, a company could show you how much cash they have at this moment in time (including overdrafts), and if they do run out of cash then they are indeed bankrupt.

When judging the health of a business remember:

Balance Sheet=Vanity
Profit&Loss=Sanity
Cash flow=Reality
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I think you're oversimplifying. All three of those statements are of value if you know what you're looking at.
 
Theres a load of companies that don't make even their breakeven point. But they will get there soon enough. Thats the way the cookie crumbles.
 
Vonhelmet said:
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.
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I think the technical term is "hollywood accounting", where the studio effectively charges every production for every cost of every other production that year (or released, in pre production that year), then off set it against the profits of the one film...

IIRC an example i've heard is where they might take out a full page advert for 2-4 films (on the same page), but bill each film as if it had the full page to itself, and do that for pretty much all the marketing stuff (hence part of the reason the marketing budget for many films can be a very big percentage of the total cost)...

I think under the "hollywood" method the Star Wars films have yet to break even, as IIRC one of the actors is still getting the yearly "we don't owe you any additional fees as the film is not yet in profit" statements (I think those who did not opt for the percentage of the gross are getting that).

The Forest Gump story doesn't surprise me at all, iirc that sort of thing is fairly common for authors who have a book optioned but are not familiar with the system, and is fortunately becoming less common now as I think the various authors associations are getting quite good at giving advice to new authors about the scams (both legal and illegal).

It's a system that is about as corrupt and unfair to the "smaller" people as is possible to be, yet is somehow still legal.


Fortunately most businesses don't use quite those smoke and mirrors, even the film and TV industry base din the UK, where I think the accounts have to be a little clearer....

IIRC in the UK it's not uncommon for a TV series or production company to make losses partly because of the tax breaks they can get (Uwe Boll by all accounts never wants to have a success as he makes a relative fortune from the German Tax payer for his abominations), and TV/Film can pay for itself over decades, which is one of the reasons ITV were in such a poor state for a while, they'd opted for the short term profits from reality TV, as opposed to anything with any value after the initial showing/first week.
 
triggerthat said:
Silly question, but what's the point of a business? I suppose it goes against people believes that it is to make money. Are we all suppose to contribute to society?
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Depends, there are a couple of answers to this question.....

One:
Jokester said:
The entire point of a company is to make money for it's shareholders.
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Two: companies do 'make money'. Which is where it is awfully complex... Because they do but they don't. God my brain hurts.... Arguably a company's basic purpose is to supply the market and meet the demands of the consumers. Explaining it beyond that is quite probably going to make my brain explode....

kd
 
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