I was listening to a podcast about FreshPet dog food. The owner said they have yet to turn a profit. Can some explain to me like I’m 5 years old how a business can run without making profit? How do they pay their bills? How do they pay their people? How do they buy ingredients? How do they pay their personal bills? I just can’t wrap my mind around it.
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It’s puzzling why no one has addressed this, but the most prevalent reason is that the entrepreneur made a substantial initial investment to kickstart the company. For instance, let’s assume an investment of $100,000 to develop the product and establish the office. Even with a 30% profit margin, the business is indeed profitable. However, until that initial $100,000 is recouped, the entrepreneur isn’t technically generating a net profit. Nevertheless, since the business is profitable, it’s merely a matter of time before they begin to see actual returns.
Thanks. So basically until a business makes back the investment it isn’t profitable. Hypothetically, if FreshPet got a $100,000,000 investment, they are not profitable until they make back that $100,000,000? Then any extra money made above expenses would be profit?
The company does a great job at looking valuable to investors. Being valuable is most of the time based on speculation. Being valuable is also largely confused with the word profitable. It operates for a period of time on capital raised from investors. If on a long enough timeline it can’t turn a profit those investors lose their money.