Profit is not a dirty word

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May 16, 2017 | Posted in Business Advice
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There are many reasons for going into business but fundamentally it is to make profit. It may seem obvious, but making profit is important for three reasons (listed in what I consider should be the order of priority):

  1. You need to make profit to reward your investment and effort.
  2. You need to make a profit to purchase new assets for growth.
  3. You need to make a profit to repay debt.

It is essential that your business be able to return profit to you as an owner, and have sufficient left over to invest in additional business assets and repay debt.

Why then do accountants minimise profit in accounts?

For many businesses, financial record-keeping evolved only as a means to minimise taxes. Accountants are retained and rewarded based on their ability to make profits disappear so that tax liabilities are minimised.

Whilst a tax minimisation strategy is important, in many cases small business owners make this their primary focus. The problem with this is that it makes you take your eye off the fundamental reason you should go into business and can actually make you think that profit is a dirty word because it means that you have to pay tax.

How do you make or improve profit?

It is common for many businesses to leave profit to chance rather than as a considered plan. Obviously price, margin and overheads are the keys here, but have you considered what yours are and how changing them impacts on your bottom line.

Once you have a "plan to profit”, have you considered how you are going to measure your successes or failures against this plan and what actions you need to take to keep things on track?

Can your business make more profit?

Short answer, almost certainly. Especially if you have no profit plan in place at the moment. Our experience in this area supports this because we have helped many clients develop profit plans, financial models and monitoring reports which have maximised their profits, and helped them to grow their business.



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