Profit Strategy – The Profit Variables

The ultimate aim of any business is to generate profit, regardless of what the owner or entrepreneur said it. Without profit, no business will survive for long, let along growing. Ask any one with a basic accounting knowledge, he or she will tell you that the profit equation is very simple.

Profit = Income – Expenses

The profit equation is so simple that business owners, top executives often conveniently pass it over and complicated it. Evident can be seen through the recent credit crunch which sent many of the Blue Chips CEOs to their knees and many companies, including banks and financial institutions out of business for good. A year after the crunch, many big corporations are still scrambling for ways to stay afloat. Most of these companies who are falling have inevitably and conveniently forgotten that while rapid expansion with escalating cost into non-core business might give them huge revenue to pump up their profit to justify their high pays and perks; the cost will eventually caught up and sink them. A lesson learnt and should not be forgotten.

There are only two variables in the profit equation, income and expenses. Small business owners must always focus on these two variables

1. To generate income from your core business; be it sales of products or providing services to their customers. You must not get distracted into other non-core business operation or income especially when you are on the infancy stage of your business operation. Any distraction can be easily dictated by your customers, dilution of product or service quality will give your competitor an opportunity to snatch them away. Once they are gone, you may need more cost to ring them back.
2. As small business owner, you must realize one very important aspect of the profit equation. While generating income is the utmost task for your business to grow. You must always keep an eye on your costs or expenses. A dollar generated from sales may only bring you a fraction of may be 20% of profit after all the expenses incurred from your operation. A dollar saved is definitely representing a dollar profit. Always find ways to reduce cost while maintaining your products or service quality.

Statistic in Small Business Administration shows that much new startups could not survive the first 5 years, in order not to be one of the statistics, while mapping your small business strategy to grow your incomes; you must always keep a close watch for the expenses. Always remember the simple rule of profit variables; keep your cost low while increasing your income; and you will be on a very smooth path to a great business.