Profit is NOT an Ugly Word!
Posted on August 24, 2016 by Jeff Schuster, One of Thousands of Business Coaches on Noomii.
Profit means different things to different people. A business owner's relationship with money is the one thing that can impact their success the most.
Profit is the money you have left from your Revenue once you pay your Direct Costs, and your Expenses.
What does Profit Mean to You?
Profit means different things to different people. Of all of the things that affect small business owner’s success, I believe a business owner’s relationship with money is probably the one thing that can impact their success the most. When I start discussing profit with a small business owner, I get some of the strangest reactions.
The Ideologue
The Ideologue will say something like, “It’s not about the money, man.”. Of course businesses are not all about the money. However, profits to a business are like oxygen to humans. If you don’t have profit, you simply cease to exist. Some people start “non-profit” businesses thinking they are exempt from the idea of profit. This thought could not be further from the truth. All businesses and entities are either making money (profit); or they are losing money (loss).
The Penny-Pincher
Other clients will hoard money as if they let it go it will never come back again. Being too frugal with money can stifle a small business and prevent growth from happening. You have heard the old saying, “It takes money to make money.” This saying should be, “You need to spend money, to make money.” Simply having money that is not put to use, is no different than not having money at all.
The Spend-Thrift
Opposite of the Penny-Pincher is the Spend-Thrift. Spend-Thrifts will blow through money spending it on all sorts of things that do not directly relate to the business. They either make purchases the company cannot afford and eliminate profits; or they will stifle growth of the company by not spending money on profitable investments in the company. You will typically see such expenditures on the ‘expenses’ ledger rather than the ‘direct cost’ ledger.
What Should Profit Mean to You?
I could go on and on about the different money personalities, but that isn’t helpful. So, as a small business owner, what should profit mean to you? Profit is the life-blood of any company. For a small business owner just starting out, it will determine if your company will survive or fail. If you have a boot-strap company, you cannot make it even a year without making a profit.
As you can imagine, not all companies make a profit at first. In fact, many companies will lose money in their start-up phase. When you first start a company, many people do not know about your company. They may or may not like the products and services your company has to offer. It is common in the first few months or year of a company’s life, you will invest money in advertising, networking, marketing, and sales without sufficient revenues to pay the bills. That means that you will need to either borrow money or invest your savings in this startup phase.
Let’s say that when you put together your financial forecast, you plan to lose $40,000 in the first few months before you break-even. In business vernacular, this $40,000 is often called an investment. This is the amount of money will need to either provide from your savings, or borrow from a bank. I am not an advocate of borrowing for small business ventures; and most banks will not loan you the money anyway.
How are Profits Used?
During the operation of your company, you will find that you will either make more or less money than you had anticipated. If your company makes money, it is a profitable company and something you ought to be proud of. Creation of profits by a business indicate that you are offering society a product or service they feel is worth more than what it costs you to assemble that product or service. So, what should you do with these profits? You can: 1) pay back investors (even if the investor is you); 2) keep profits in the company and increase costs to grow your company; 3) pay off debt needed to start the company; or 4) improve your personal income. All of these uses should be outlined in your financial forecast.
