Is it OK to make a loss in business?
And does a company always need to be profitable to be successful?
Many business owners are faced with this question at some point. The instinctive answer might be “no”. After all, profit is usually the end goal. But in reality, there are times when running at a loss can be a strategic, even necessary, decision.
So, does a company always need to be profitable? Not necessarily. While long-term profitability is essential, short-term losses can actually support sustainable growth. Especially if they’re part of a well-thought-out plan.
Here’s when it might make sense to run a business at a loss.
1. Making a loss to invest in growth
One of the most common, and valid reasons, a company might choose to operate at a loss is to invest in future growth.
Hiring new team members, expanding premises, launching products, upgrading systems… these all require capital up front. And until the returns come in, the business may show a loss.
Many companies, especially in the tech sector, operate this way in their early years. Amazon famously ran at a loss for years while building infrastructure and market dominance. While your business goals might be more modest, the principle remains the same: strategic losses now can lead to bigger profits later.
The key is to ensure that your investment ties into your long-term goals, and that there’s a clear path back to profitability.
2. Losses in the early stages of a business
If you’re a startup founder or scaling up, you may be wondering if it really is OK to make a loss in the first year of business?
The answer is yes, provided you know why. Early-stage businesses often lose money as they build brand awareness, develop products, and attract their first customers. During this phase, your focus should be on validating your business model, generating momentum, and tracking leading indicators like customer acquisition and engagement.
You might not be profitable yet, but if the fundamentals are strong and you’re measuring what matters, the loss can be part of a healthy trajectory.
3. Choosing losses to protect staff or customers
There are times when it’s worth taking a financial hit to protect your most important assets; your people and your customers.
For instance, during an economic downturn, you might decide to maintain staffing levels despite reduced revenue. Holding onto skilled team members may cost more in the short term, but saves you from expensive rehiring and retraining later.
Similarly, offering discounts or flexible terms to retain loyal clients might temporarily reduce margins, but can strengthen long-term relationships and improve customer lifetime value.
In both cases, a short-term loss can preserve long-term profitability.
4. When a loss is a red flag (and when it’s not)
Not all losses are created equal. A loss that’s unexpected, unexplained, or persistent without a plan is cause for concern. But a planned, strategic loss, backed by clear goals and timelines, is often a sign of a business investing in its future.
What’s crucial is knowing:
- Why the loss is happening.
- What return you expect from it.
- When you plan to return to profitability.
- How you’re tracking progress in the meantime.
And just as important, you need to communicate this clearly to stakeholders, whether that’s your team, investors, funders or board members. Transparency builds trust.
So, does a company always need to be profitable?
In the long run, yes. No business can survive forever without making money.
But in the short term?
No. A company doesn’t always need to be profitable. In fact, it can be OK to make a loss in business if that loss is intentional, temporary, and part of a strategy that supports future success.
If you’re not sure whether your current financial position is part of a smart growth plan, or a warning sign, it might be time to take a closer look.
Get clarity with a financial health check
At Artemis Clarke, we help business owners understand what’s really going on in their numbers.
Our Financial Health Check will give you the insight you need to decide whether a loss is part of a bigger plan, or something that needs urgent attention.
Get in touch to see how we can help you bring your business back to profit with confidence.
Photo by Wayne Jackson on Unsplash