What are Profits, What are Losses?

Profits & losses are very simplistic terms, but hard to understand & fathom. They are chasing mankind from time immemorial. People run after them like mad or run away from them like crazy. No one has understood them very clearly. Though my understanding might be blurred, but through this article I attempt to make an effort to put forth my point of view. Likewise I solicit your comments & suggestions on what you think are profits & losses.

In the board game of lucky 7, it’s either up (no.s beyond 7) or down (no.s below 7) that you need to bet on before throwing the dice. The probability of 7 coming, is very low. Similarly in business either you will have a profit or a loss that is either a up or down and there is hardly a middle thing. Logically profits are a result of our excess income / revenues over expenses and losses just the reverse. Profits are attributed to hard work and losses may be bad luck, policy reversals, market conditions etc. It could probably be justifiable in saying, there is one simple reason to profit and many excuses / justifications for the losses.

Above all profits are reasons to celebrate & cheer and losses lead to withdrawl & depression, may be. Profits lift our adrenalin but losses deplete our serotonin. So why does this happen? Everything is not logic & critical thinking, there is a shade of grey between black & white. What is that? It’s the middle of the road approach. Neither profits neither losses are a permanent feature. They both don’t stick, around for very long. Why, is a big question that has no clear or straight answers. But like change is inevitable, so are profits & losses. It’s not possible that corporations move like a straight line in normal course of business following standard accounting practices. Corporations that performed like a straight upward line had to move their regulators and disclose the truth, correct their past earnings disclosures. Reported examples are a dozen like Satyam, Enron, Worldcom etc and unreported, God knows.

So what’s the solution, celebrate losses and be calm in profits. Why celebrate? Profits are just a favourable number nothing more. Do they teach you anything? No. Does it ensure that what you keep doing the same thing year on year, you will have profits? No. So why to celebrate, when you know the celebration is going to be temporary! Losses on the other hand teach you a lesson. Losses give you the room to maneuver your strategy, redraw things, refocus, relook at people – processes - systems. Logically losses help you reduce your tax burden too. Moreover losses that result from factors outside the control of the corporation, result in a lesser frustration than the ones that occur due to the promoter’s incompetence. Why, because it’s easier to blame others than to pin the blame on us. It’s their fault, what could we do, is the normal rhetoric.

Have a distinct look at losses too. Consider losses to be a way of redistribution of wealth. You always wanted to be a Tata, Ambani , Gates, Birla, Buffett etc. But do you realize how much they give away for charity? Never, because we always look at their revenues and not their expenses! So when in losses consider yourself to be one of the above in terms of giving away. Thereafter refocus, re-plan, re-strategise, relook etc. to get back to the league that you truly belong to. In a nut shell there is nothing permanent. Be prepared for everything, as we live in a world wherein a young man dictates his nukes and an old man grumbles his way towards waywardness!

Who will profit, who will suffer losses, no one knows as it’s probably a zero sum game.