Making money is what business must do!
Most importantly, where we say business, we mean private or not for profit. Likewise when we say money, we mean profit. Furthermore, don’t dismiss:
• How you make that money
• What your business values are
• The amount of money you want to make; and what you do with that money
Above all, your aim is to make money. Consequently, if making money is not your aim, then you have an expensive hobby.
Private and Not for Profits (NFP)
For example, private business’s primary goal is to create value for their owners. This normally means making a profit. NFPs goal are based on serving the needs of their public. Both private business and NFPs must look to make money.
There are certainly differences between private and NFP’s organisations. While the principles applied in crafting the organisation are the same for both types. As a result whatever form the business takes, it has responsibility for being sustainable.
NFPs include many art organisations, charities, Community Interest Companies (CICs) and social enterprises.
Some main differences between private and NFP businesses is what their aims, are and what they do with any profits made.
Furthermore, profits are kept within an NFP to help it achieve its objectives.
Business need to make money because:
- It’s more difficult to borrow money if you are not making money
- Good staff are likely to leave because you can’t afford to keep them
- Investment in Equipment and technology gets delayed
Lack of money means that you can’t suppliers on time.
- Credit terms may be cut, or you pay cash on delivery
- Key projects are cancelled or delayed
- The value of your business drops, not good news if you wish to sell it on
- You don’t get the financial rewards from the efforts you put in
Other reasons businesses need to make money:
It is essential to the survival, prosperity and growth of your business:
Your business profit is the business cash ATM. When you run out of cash it’s all over.
The main ingredient for growing the balance sheet and reserves is PROFIT. A strong balance sheet keeps gearing low. They are more attractive to a variety of stakeholders.
Lenders prefer to lend to profitable businesses. Borrowed money is paid from profits. No money means you can’t repay loans. Your business is seen as risky by a lender
Profit underpins the market value of your business. Furthermore Business Goodwill is worth more than your company assets.
Profit measures management effectiveness and efficiency. Similarly bankers, lenders, shareholders, customers and suppliers use profit to judge management ability.
This is the business equivalent of engine oil or fuel in a car, it makes it run, and funds material, inventory, labour and other day to day costs. Consequently profit improves working capital. Likewise profitable businesses fund working capital more easily .
Investors want to make profits with their money, not lose it! Hence profitability is the measurement of management’s ability to operate efficiently. Above all, making profit reflects your ability to perform in the future.
It’s easier to hire good and high calibre staff when you’re making money. In contrast businesses that don’t make money find it difficult to pay and reward good staff.
Build cash – Profit is one of the few things that will enable a company to increase cash in the bank.
In conclusion, does your business make money ? Do you know how much money ? More importantly do you want your business to make more money?
Get in touch with us to see how we can help you and your business make more money and all your accounting and tax needs. For more business and finance , news, advice and tips, don’t forget to watch our weekly broadcasts, listen to our weekly podcast I Hate Numbers.