Deficits are common in the business world, especially in start-ups. It’s not uncommon for a company to lose money in the initial first years of existence. Tech companies are notorious for operating at a loss for the first few years. These companies stay a float through investors’ funds and increasing rounds of capital raising. Of course, an infamous non-business example is the United States government. Each year the US spends more money than it takes in from taxes and other collections. In financial terms, a deficit occurs when expenses exceed revenues, imports exceed exports, or liabilities exceed assets. A deficit is synonymous with a shortfall or loss and is the opposite of a surplus. A deficit can occur when a government, company, or person spends more than it receives in a given period, usually a year.
In a nutshell :
- A deficit occurs when expenses exceed revenues, imports exceed exports, or liabilities exceed assets in a particular year.
- Governments and businesses sometimes run deficits deliberately, to stimulate an economy during a recession or to foster future growth.
- The two major types of deficits incurred by nations are budget deficits and trade deficits.