Profitability can be achieved in the short run.
1 How Are Short Term & Long-Term Effects Incorporated Into Planning & Policy-Making in a Company?
All small business owners want their companies to be profitable, but they need to find a way to strike a balance between short-term and long-term profitability objectives. Too much focus on investing in the company’s long-term growth can result in cash shortfalls in the short term. Conversely, a business owner who focuses too much on short-term profitability may not make the expenditures necessary to keep his company competitive in the future.
Profitable companies generate cash above and beyond the current expenses of the business. This cash is available to fund stepped-up marketing efforts. Ideally a company’s strategic marketing plan is like the design for a money-making machine. The more fuel added in terms of expenditures for advertising, promotions and business development, the faster the company will grow. Companies that aren’t profitable may have to cut marketing and promotion expenditures in order to conserve cash. These cuts can impair the company’s growth because the company’s marketing message does not reach as many potential customers.
The owner of a profitable company is able to share the results of financial success with his managers and staff. He can boost their salaries, award bonuses and provide other rewards such as vacation travel. One important effect of sharing with employees is greatly increased morale. The company’s success helps the employees reach their personal financial objectives -- such as saving and investing -- more quickly. The company’s financial success also gives employees another extremely valuable reward -- job security. They don’t worry about the company having to downsize and reduce the workforce to save money.
Reaching revenue and profitability milestones provides everyone in the organization with a feeling of achievement. For the business owner, reaching profitability in the short term is proof that his business model works as his business plan said it would. It represents customer acceptance of the company’s products and services. When the business owner shares the good news about the company being profitable with his team, they share the excitement of being part of a winning organization. Each time the company reaches another short-term profit milestone, this feeling of success is magnified.
A small business is subject to a host of environmental factors that can cause financial results to deviate from forecast. Companies that are enjoying short-term profitability have the resources to deal with setbacks such as losing sales because bad weather prevented customers from shopping. Unforeseen opportunities may arise as well. A glut in the supply and drop in price of a raw material the company uses could allow the business owner to purchase more inventory than normal and reduce the cost of production. Short-term profitability gives him the cash flow -- and confidence -- to be able to make this purchase.
As with individuals, companies that are able to pay their bills on time or early build a solid credit history with vendors that may allow them to purchase on more favorable terms. Companies experiencing short-term losses may have to delay payment to vendors because they have insufficient cash to cover all the accounts payable that are due. Paying slowly can give the company a negative image with its vendors.
Hill, Brian. "The Advantages of Short Term Profitability." Small Business - Chron.com, http://smallbusiness.chron.com/advantages-short-term-profitability-63235.html. Accessed 24 April 2019.