6 minutes ago, CommanderDave said:Incorrect. A business is an investment. If an investment does not yield a sufficient return to justify the risk involved, then it is a failure. Not only must it compensate for the risk of loss, but it needs to keep pace with inflation as well. If you’re generating $1 after expenses on your investment, that is not sustainable and, in light of opportunity cost, a substantial loss.
Sustainability. That's exactly right. A $1 profit margin is a nightmare. What if, let's say, a pandemic hit and sales dropped/cost of shipping goes up/availability of raw material or production goes down? That razor thin margin is now a substantial loss and something has to give. And it is usually a "controllable cost", such as labor/wages.
If you aren't running something north of a 5-8% profit margin, you are asking for "bad weather" to put you under. Most privately owned restaurants that closed permanently recently fell in this category.
This is in no way a commentary on HOW the layoffs were executed in this example.