What you should know about profit now
Remind people that profit is the difference between revenue and expense. This makes you look smart. – Scot Adams, cartoonist and creator of “Dilbert”
It doesn’t matter if your business brings in $100,000,000 a year in revenue if you spend $100,000,001. Business is not what you make; it’s about what you keep.
Profit is a very simple concept: its bringing in more money than you spend. In order for a business to continue to exist, the total revenue collected must exceed the total expenses it accumulates at some point in a foreseeable future.
If it doesn’t, it will cease to be a business, the operation will run out of resources and close or it will become a project subsidized by the profits of another business. Nothing can operate at a loss forever.
Profit is important because it allow business to stay in operation. Without generating profit a business can’tcompensate its owners, who may be investing considerable time, money and energy into the operation. If the owner to find their investment worthwhile they will simply close the business.
Profit also provide a “cushion” that allow the business to weather unexpected events. If a business is barely generating enough revenue to cover its expenses and those expenses suddenly rise, the business is in great deal of trouble.
Learn MoreThe more profitable is the business the better it will be able to handle uncertainty and change, and the more options it has to respond to the unforeseeable.
Profit is a very important consideration, but it is not the be-all and end-all of business.
Some people believe the purpose for business is to maximise the amount of profit generated, but that is not the only reason businesses are created.
For some people (like me), business is more of a creative endeavour, a way to explore what’s possible, help others, and support yourself at the same time.
From this perspective, as long as you are making enough profit, your business will continue to be successful.
READ ALSO: Great lessons on family business for every business
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