Why are there now so many huge business that don't make any money?

[Caracus2k]

why is offsetting one years losses against another years profits even allowed?

In mind I have it that a company's accounts run from dd/mm/yyyy to dd/mm/yyyy+1 each year and aside from assets nothing should be carried over?

One reason may be because otherwise there is a strong disincentive to invest heavily.

Companies can't just plan on an annual, arbitary time frame if then want to succeed in an international market. Investments need to be consider over much long time frames 5,10 maybe 25+ years.


Let's say I own a factory and wish to install some new machinery to keep the factory competitive against my international competitors.

I can't do this piecemeal as its a modern linked production line so my only option is to spend many millions of pounds in one year to buy and install the modern machinery. The minimum period before this new machinery will break even is at least 5 years let's say.

Buying that machinery will mean my company will make a significant loss this financial year but will keep by business competitive and ensure that my employees stand a good chance of keeping thier jobs as otherwise my factory would become uncompetitive and loss making with the old equipment.

If I can't offset that investment over more than one year I, and other companies, have a significant disincentive when it comes to making large investments to grow and maintain our business's

 

[dowie]

It would seem to me the most basic aspect of running a business is to price your products so that you generate a profit else there is no point in you existing.

Why is it that so many huge companies (Spotify etc) seem to be many years old, have many millions of customers, yet still fail to generate a profit? Why isn't the plug pulled on them?

Has the world gone mad? Where is all this money coming from?

You're basically asking what is a start up and why do people invest in start ups....

The whole point is rapid growth, they're initially reliant on investors at various stages and tend to either grow or crash and burn or in some cases never really take off in the first place or attract much funding and just morph into regular small tech businesses instead of start ups.

Spotify does make a profit now AFAIK, they've had an IPO.

As for where the money is coming from - well initially the founders themselves + perhaps friends and family and maybe universities (some are keen to support their students/academics with both funding and sourcing external funding in order to commercialise their research), or seed investors/incubators or other start up founders/angel investors etc.. then later you'll maybe have larger venture capitalist interested/VC funds etc...

 

[Skidder]

Creative accounting to make profit look worse . New one on me , not saying that means it doesn't happen!

what other kind of creative accounting is there?

 

[Pudney]

what other kind of creative accounting is there?

Creative accounting is normally used to make profits larger. The benefits from better results (e.g. market confidence, attractiveness to invests or lenders, qualifying conditions for relevant bonuses/sales targets etc.) far outweighs any tax cost.

 

[chrcoluk]

yeah I forgot the tax angle, definitely a factor as well.

A similar reason as to why wealthy entities buy loss making football clubs.

 

[dowie]

yeah I forgot the tax angle, definitely a factor as well.

A similar reason as to why wealthy entities buy loss making football clubs.

Sorry but what is the inherent benefit in making a loss on a football club?