The Importance Of Profit In Business

There is a risk involved in running a business. Making a profit is a reward for the risk that business owners have bravely taken. While making a profit is not just the only goal of every business, it is one reason a business operates.

The importance of profit:

1.    Efficiency indicator: One of the ways to measure the success of the business is to check the profit it has earned for a given period of time. Profit is considered as a yardstick that determines the business firm’s efficiency and earning capacity.

2.    Survival: It will be impossible for a business to survive without earning sufficient profit. Business owners consider profit as a source of income and it is also used for paying business expenses, salaries of employees and even buying raw material. Your business does not have a chance to survive if it is no longer earning a profit.

3.    Motivation: When you see your profit increase, you will be more motivated to strive harder and take risks. There is a direct relation between profit and risk. When the risk is higher, the profit is also higher.

Ways to improve your profit

Reduce your cost:Minimising direct costs can have a positive effect on your profit. This can be done by negotiating with your suppliers to lower the process or reviewing the processes and systems. Instead of sticking to the same supplier year after year, it is important to explore other options that can help your business minimise expenses. When you improve your procedures and methods by ensuring that they are systematic. Good systems help you prevent errors and save time and money.

Focus on profitability:Although increasing your profit may not only be your priority, it is worth focusing on profitability as it has a dramatic impact on other aspects of your business. Employees must also be aware of the importance and role of profitability in your business. Ask your bookkeeper and accountant how you can ensure you are monitoring the right indicators that will give your business a boost. When it comes to your team, make sure productive employees are rewarded because great pay is linked to effectiveness.

Make continuous improvements:Anticipating problems and adopting technologies that can enhance your company’s ability to make continuous improvements will do wonders on your profitability. Good planning is important in achieving your goals and making improvements. When measuring the effectiveness of your plans, set measurable targets and review your performance as a team. You are on the right track if you see improvements on your system.

Improve your turnover:Some of the known techniques that can increase your turnover include focusing your efforts on profitable customers, keeping your services or products up-to-date and maximising the value of your sales.  It has also been proven that businesses actively selling their products instead of just taking orders have increased their turnover and more likely to survive.

Tamara Deterding

Written by : Tamara Deterding