Every business needs to make a profit, we already know that, but when should that profit be measured?
And as for many questions, the first response is “That depends”.
It depends upon why you are measuring the profit.
Ideally, and unless you can afford to run “loss leaders’, every transaction needs to deliver a fair profit. That is a sales price that makes it worthwhile for the business to sell it, and that makes it a good deal for the person or business buying it.
A successful business also needs a longer term perspective. There are bills that only need to be paid after a longer period – rent is maybe weekly or monthly, suppliers often provide monthly accounts, utilities might only need to be paid every quarter, and some memberships or licence fees are due on an annual basis.
So your measure of profit has to take into account a longer time frame than just a single transaction. Your sales price has to cover the cost of acquiring what you sold, plus a contribution to these other costs of doing business.
That’s all probably stuff you’ve heard before, but have you heard of behavior being a measure of profit? Before exploring that, let’s take a step back and agree on something: What you do today will build the world you live in in the future. Taking it easy will not provide you with a nice house and car. Managing your money, taking control of your finances will be more likely to do so.
The point is that behavior that your market disapproves of will eventually cause the business to fail. It may survive on past glory for a while, but it needs to truly serve the needs of the market or it will eventually fail when people stop coming in to buy, and that makes a big difference to your overall profit position.
Think of it this way: if you don’t truly serve your market they will go to someone who does.
What business issues do you think other business owners would be interested in? Let me know in the comments section.
Most people think that business finances are the same as personal finances. There are similarities, of course, though the differences will bite you unless you know about them.
Let’s get the similarities out of the way first. You do need to balance your account – you can’t spend more than you have. You can have a mix of facilities – transaction accounts, debit and credit cards, online services, and a host of different places to use each one.
You do still need to look for good value for your spending, but maybe the definition of what’s good value can change. Let’s explore that.
The first major difference is that most of the time you are on opposite sides of the transaction when you spend your own money. What I mean is – when you buy something for your personal consumption you will never see that money again. You want the lowest possible price. The seller want’s the highest possible price, because that’s where there profit is.
When you buy something that you intend to sell for a profit the person you buy from is now on your side. They are instrumental in you making money. In fact, without their supply you can’t be in business. It is in their best interest to make sure that your business thrives, and continues to buy from them for a long time to come. You now recoup the purchase price when you sell the item. That’s very different from buying something for your own use.
You still need the best that your money can buy. That doesn’t change, unless the supplier that provides that product has problems delivering on time, or maybe only supplies larger quantities than you want to order. The best value for your business – the product that allows you the highest return – might be 95% of the quality, 80% of the price and 100% better delivery conditions.
See how your mindset has to change when you run a business?
Do you have a question, or a comment on what other differences there are? This isn’t supposed to be a complete list, just a place to start the conversation. Let us know what you think by using the login tag on the left side of the screen.