Do you know if your business is profitable or not? Why is profit important to measure in business? Making a profit can help determine if you’re meeting your customer needs, and it can attract potential investors to your company.
Profits are essential to the success of any company. As a business owner, you need to know how your revenue is being spent inside the company.
If you don’t take advantage of that, it’ll be more difficult to run a business moving forward. In this article, I’ll review three main reasons why you need to measure profit in your business.
- To Grow And Scale Your Business
- To Attract Potential Investors For Your Company
- To Increase The Living Standards Of Your Employees (& Yourself)
What does profit mean in business?
Profits measure what a business has achieved over time. In particular, profit margins are crucial to understanding how much you have left over.
Profit is any amount left in revenue after paying expenses and withholding some in taxes. For instance, if your business makes $100,000 a year, and you pay $20,000 in expenses and taxes, you’re left with $80,000 in profit.
Now if you run a large corporation, that’s not profitable at all. If you have employees that work for you, that may not be enough to pay them an average salary. Not only that, you need to pay yourself as well.
It’s why when running a business, you need to know your numbers. If you don’t know your numbers, your business will likely not succeed in the long run.
How does profit impact a business?
- A profitable business allows owners to improve the quality of life for themselves and their employees. At the same time, they can provide more value to the customers they serve.
Top reasons to measure profit
To grow and scale your business
When your business is profitable, you can use that extra money to scale even further. For example, you can hire more people, which brings on additional help for your business.
Whether that’s to do administrative work or bring on marketing specialists, it can benefit your business immensely. Also, you can look into getting new equipment or technology that can help your staff.
With any extra money left over, there is potential to grow your business even further. So growing and scaling the business benefits you either way.
To attract potential investors for your business
Having a profitable business shows other people you have something valuable to offer. Are you addressing a complex problem or pain that an individual is going through?
One of the main points of entrepreneurship is to solve problems for other people. Essentially, you’re in the business of problem-solving.
In the eyes of venture capitalists and investors, they like seeing businesses that tackle major problems. Those who invested in Amazon 25 years ago saw what potential the company had to offer.
Although Amazon started out as an online bookstore, it turned into a massive online retailer over time. The solutions they provided to their customers include a simpler checkout, and quicker delivery options (i.e. overnight, or two-day delivery).
If you go in a similar direction, your company can go public- meaning you have your own stock for shareholders to purchase. If that’s something you want to explore, it can be worthwhile to grow your business.
To increase the living standards of your employees (& yourself)
The whole point of making profits is so you can give back to the people who work at your company. For example, if that’s by giving them a raise or a bonus come to the end of the year, then that can be worth something.
If compensation rewards are something you want to make the most out of profits, it’s well worth considering. It helps improve the livelihoods of those that contribute to growing the business.
Along with that, you have to make sure you pay yourself what you’re worth. Sure, you need to pay your staff first and foremost. But after that, you want to take more for yourself at the end of the day.
As the primary individual of the business, don’t you want to reap the rewards and benefits? Is it worth enjoying them for all the hard work you put in early on?
It can be worth it for the time and effort you initially put in. It’s a wonderful feeling to improve the living standards for your staff and yourself.
As brought up earlier, making a profit is critical to growing your business. Without it, your business is not meaningful if you’re trying to improve the lives of others.
The three reasons discussed earlier can help in measuring profit, and it can make your business more successful in the future. If you’re willing to understand more about profit margins, you can have a profitable business that will attract all types of individuals.
If it’s helping other people solve their problems, or improving the living standards of your employees, so many good things can come out of it. When that happens, you know your business is doing well to make the world a better place.
Your Turn: How do you measure profit in business?
I would like to get your thoughts on this topic. Do you believe making a profit is important for a business to grow?
Should profits come first before anything else, or do you have a different opinion?
Do you think a profitable company improves the living standards of those who work there?
Are profitable companies more likely to attract investors?
Feel free to share your thoughts by leaving a comment below. I look forward to reading your responses, and I’ll respond promptly.
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Eric is the owner and chief editor of notimekillers.com. He takes great pride in helping people manage their time and grow their businesses. Eric is a firm believer in financial and time freedom, as he believes in financial independence and taking ownership of your time. “Time is your most important asset. It can be your best friend or worst enemy. How you use your time can shape the future you desire to have.” In his leisure time, Eric loves to write and read whenever possible. He enjoys going for long walks outdoors while doing in-home workout videos every week. You can also connect with Eric via LinkedIn.