By Tom Salonek, EO Minnesota member and CEO of Intertech
Eight years ago, when my company made the list of the 500 fastest-growing firms in the country, my young nephew noted: “I knew Uncle Tom had money, but I didn’t know he was a millionaire.”
That story, which ran in the Star Tribune, reported that my company’s sales were just more than US$2 million. Despite my nephew’s false impression, my wife and I were not millionaires. We just own a company with gross sales in the millions, and that is an important distinction. Sales aren’t profit, and today’s profits fund tomorrow’s growth.
For my nephew, who was 11 at the time, it was an understandable mistake. Even adults can get the numbers screwed up. While there’s no doubt that US$250,000 is a lot of money, there is considerable misunderstanding about what that money means when you’re running a small business.
I founded and work for a software development and training firm that is organized as an “S corporation” for tax purposes. Like the other 35 employees, every other week I receive a paycheck. At the end of the year, when taxes are due, the company’s profit is reported on my personal tax return. While I pay tax on this profit, the bulk of the profit remains with the firm. This retained profit covers payroll and some short-term financing. But most important, retained profit funds the company’s growth.Growing firms need cash. A growing company consumes cash— lots of cash. I think of growing companies as “gazelles,” which is a term applied to firms growing at the rate of 20 percent a year.
With the economy in its current distressing condition, now is the time to leverage the opportunities that are out there. I believe we need gazelles more than ever. Gazelles represent only three to four percent of all “small” businesses. These are the firms that generate most of the net new jobs in an economy. They also drive innovation.
Necessity is the mother of invention. While these global economic times bring uncertainty, it is now that we must work harder, think harder and force ourselves to work “out of the box.” This makes us stronger as individual companies and stronger as a global community of entrepreneurs.