Profit Decay


Management can always shortchange sales, R&D, or market development, or forgo manufacturing improvements for the short term to make the business and profits look better. Doing so can lead the company into a cycle of profit decay that is very difficult to break out of without incurring major costs or write-offs.

A vicious and deteriorating cycle ensues until some combination of price increase or reductions in manufacturing costs and/or an expense occurs that allows the business to adhere more closely to the profit and loss framework. It is extremely important to understand that a company has, quite literally, no chance of generating attractive profits until it somehow breaks out of this cycle.

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