Determining profit and importance of profit

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Many times, we say that the profit is too high, or that the business is making too much profit without really understanding profit. Profit is the monetary return, or the reward, a business’s owner or owners receive for taking the risk of investing in the business.

But, what is risk? It is simply uncertainty – not knowing what the outcomes will be. With risk come the chance of loss – in this case, the chance of losing the money, time, and effort invested in a business, but the chance of profit is possible too. There are three main reasons that people are willing to take the risk:

Satisfaction from owning one’s own business. A lot of people owning a business indicate that a person is responsible, successful, and talented. Therefore, many people gain a sense of pride and accomplishment from owning a business.

Satisfaction from serving the community in which the business is located. Many people live in the same community in which their businesses are located. They receive satisfaction from operating a business that serves their community’s needs.

Possibility of making a profit. This reason is the main motivation for a person to take the risks involved in becoming a business owner. The desire to make a profit is known as the profit motive. Certainly, the satisfaction from owning a business or from serving one’s community can motivate people to take the risk of investing in a business. However, the main motivation, the one that really encourages people to take the risk, is the chance of making a profit.

Profit is the amount of money that is left after expenses are subtracted from income. Income is money that comes into a business. This income is from the sale of goods or services and called income from sales. Expenses are money that must be paid out in order to continue in business. There two main types of expenses: cost of merchandise and operating expenses. Cost of merchandise is the money that business must pay for the goods that they sell or for the raw materials from which they make goods to sell. Operating expenses are those expenses necessary to keep the business operating on a daily basis. Payroll, utilities, rent, insurance, supplies, equipment, taxes, bad debts, and donations are all examples of operating expenses.

Income and expenses are two elements that what, if any, a business will make. However, there are two types of profit, and it is very important to understand the difference. One of them is gross profit. It is the amount of money that is left after the cost of merchandise is subtracted from the income from sales. Another type of profit is net profit. It is the amount of money that is left after operating expenses are subtracted from the gross profit. This is the money that is actually left for the business owner to keep or to reinvest in the business.

Profits are important and beneficial to society, as well as to businesses. Some of the benefits of profit to our society include the following items:

Consumer needs and wants are met. This idea probably sounds pretty strange – consumers benefit when businesses make profits. How is this possible? Profits enable businesses to expand. In this way, they are able to offer consumers more and different kinds of products and services. New products can be discovered, developed, or offered to satisfy consumer needs and wants. In addition, the profit motive encourages businesses to change the kinds of goods or services they provide, so that changing consumer needs and wants can be met. Profits encourage business owners to make their businesses more efficient, thereby conserving resources that may be needed by the consumers of tomorrow. The added benefit is that fewer resources will be used today, leaving more resources available for future consumers. Businesses compete for profits. Because of the competition, improved products and services, higher quality products and services, lower prices, and more services are offered to consumers.

Wages and employment opportunities are better. Businesses that are profitable can afford to pay better wages and provide more benefits to their employees. Also, profitable businesses usually hire more employees, thereby increasing employment opportunities for more workers. As businesses expand, they provide more opportunities for workers to advance.

Our economy is strengthened. Profitable businesses can expand, hire more workers, and invest in new businesses. All of these help to make our economy stronger and healthier because they result in more tax rubles paid to the government. The government will use the tax rubles to pay for services and programs such as education and defense, which benefit all citizens. When businesses make profits, they are more likely to contribute to charitable causes. These contributions can help to fight against the poverty and diseases, which exist in our society. Other contributions can be used to improve the community.

Of course, profits are very important for businesses. They make it possible for businesses to grow, expand, and hire more employees. Because of profits, businesses are able to develop new and improved products for their customers and to compete with other businesses. Most of all, profits provide the incentive necessary for the individual to risk the time, money, and effort invested in a business. Although businesses may be able to survive without making profit in the short run, it is absolutely necessary for businesses to make profit in the long run. Otherwise, their employees, suppliers, owners, and creditors cannot be paid. Profits, therefore, are the lifeblood of businesses, since without profits businesses would eventually cease operating.

Дата добавления: 2014-11-29