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Comment by xwdv | Hacker News Reader

People have a hard on for seeing profit. It’s like they don’t understand the opportunity cost of taking profit means you are not investing in your business to make bigger profit. When I see profit, I see inefficiency. A young business should have zero profit until it can no longer grow.

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A lot is accounting treatment, though I agree with you in terms of cash. Businesses with high value investment opportunities should spend every dollar they have and then some. If it’s on something that gets expensed (Marketing) then profit is zero. If it’s something that gets capitalized (equipment) then the cash hit is immediate but profit impact is peanut buttered over time. Either way companies with growth prospects should spend.

The flip side is that many companies get large enough that they can’t invest smartly any more. So they should give money back. (IBM, etc)

One thing that is not known to everyone and therefore may come as a surprise to some is that corporations (in the US) are taxed on profit, not on income. This is the explanation to the click baity titles like "Amazon paid less tax than you this year!" etc. So any profit a company makes is basically the same as writing a check to the government; more likely, it would be better spent growing the business. Any kind of growth company should have a goal of making close to zero profit.

Roughly but not exactly: public companies can report a profit to their investors while at the same time reporting losses to the IRS (or other government tax authority), because the rules are different and those who know how to exploit those differences are very well paid.

> report a profit to their investors while at the same time reporting losses to the IRS

i wonder how the tax rules and accounting/SEC reporting rules could be tweaked such that the IRS and investors must receive the same level of reporting - aka, if investors see a profit/loss, the taxman must also see the same profit/loss

And importantly, making 0 profit does not mean that the executives make 0 salary.

So with zero profit, operating on a razor line at all times, what's your plan for major acquisitions or severe shock events outside of your control (eg national economic recession)? Where is the cash to come from on that terrible rainy day or when a huge opportunity presents and you need cash.

If you're not building cash, how do you plan to avoid catastrophic, unnecessary damage to your business structure when a recession hits? Banks hate to lend during recession, and lending gets a lot more expensive when times are bad.

And banks generally are horrible alternatives when it comes to capital for acquisitions, unless you're a large corporation.

Dependent on venture capital? Another horrible, expensive alternative to profit.

You're seeing inefficiency in profit because you're not pricing in everything in the operating life of a business correctly.

I think GP is using 'profit' to talk about wealth extraction from the business. Putting surplus cash into an emergency fund, maintaining a cash balance for unforeseen costs, or similar wouldn't be quite the same thing. One way to think about that is that if your company has a financial goal of $X for a cash reserve, the lack of it can be considered a liability, diminishing net profit.

> Where is the cash to come from on that terrible rainy day or when a huge opportunity presents and you need cash.

1. Banks. Their primary customers are businesses.

2. Issuing stock.

3. Getting investment capital from rich people.

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