Image by Gerd Altmann from Pixabay

Altogether, 99.9% of companies will see losses at the end of their third financial year. The other 0.1% will make a loss at the end of their ninth financial year. All companies in the world that have been in business longer than nine years make losses.

In the year after making a loss, the company will start cutting back, and then it will incur both a loss and a profit. However, without a general ledger account for profit and loss, the loss is not visible. Losses are caused by employee errors and a flaw in accounting. Employees also make mistakes in years when the company implements cutbacks. In those years, the profit exceeds the loss, which means the loss is not visible in the accounts. However, companies use profits to pay their owners and shareholders. So that leaves the loss.

For companies that don’t make use of budgeting the loss can be easily calculated. On average, a company’s total loss amounts to 2% of its cumulative revenue for the years since the company first reported a loss, which is almost always in the third financial year. When companies merge, the two partners transfer their combined losses to the new company. Thus, this new company starts with a loss from the first year. That loss is the total of the losses of the merger partners. Shedding loss-making business units does not affect the loss.

After a few decades, business losses can reach 30% to 40% of revenue

This means the loss increases for every year the company is in business. After a few decades, a company’s total loss can amount to 30% or 40% of revenue. Take, for example, a 20-year-old company employing 900 people with a turnover of $100 million a year. At the close of its 19th financial year, it would have a total loss of $34 million. By the end of the 20th year of business, the loss will be $36 million. However, without a general ledger account for profit and loss, this is not visible in the accounts.

Why are companies profitable in their first few years of business?

Losses amount to only 2% of revenue. As long as the market and revenue grow by more than 2% a year, losses are covered. All told, 99.9% of products need two years to reach all their potential customers. There are two exceptions to this rule. When selling a product that customers don’t understand (the video recorder in 1980), companies will need eight years to reach total market penetration. After an all-destroying war, in the period where a country is rebuilding, it can take a few decades before all citizens can get all the products they need to live.

How big are google’s profits?

Like every company in the world that is older than eight years, Google alternates between years of profit and years of loss. They closed the year 2019 with a loss.

In July of 2020, YouTube announced new advertising opportunities. All videos longer than 8 minutes automatically get an uninterruptible commercial block in the middle of the video. Even if the creator has previously indicated that he does not want advertising blocks in the middle of his video.

YouTube does this under the guise of helping creators to make more money. But in reality, the goal is to try to cover Google’s losses. Per the 31st of December 2019, Google had a loss of $ 14.9 billion. By increasing turnover, Google hopes to cover this loss.

But that will not happen. Thanks to this extra advertising revenue, Google’s profit for 2020 will be a lot bigger. But Google won’t think of using that profit to cover its loss. When closing the 2021 accounts, Google will again have a loss.

Smart savings make companies healthy

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