Profitability - The Primary Business Objective

Profitability: Isn't that what you're in business for?

Businesses that don't make profits don't stay in business long.

How can you improve your bottom line?

The Purpose of Business

It doesn't matter what business you're in: Retail, manufacturing, service, resale, wholesale, etc. You must make $$$$.

The purpose of business is two-fold: Growth and Profitability. Every business wants and needs to make a profit and most, if not all, want to grow. If someone were to ask you "what is the purpose of business?" would you say Growth and Profitability? Let's hope so.

The Organizational Mission

Of course the business purpose, common to all business enterprises, is to grow and prosper. But the purpose should not be confused with the Mission. It is important to make some distinctions. Although the Mission is sometimes referred to as a "Statement of Purpose," in reality it is more a description of "how" you're going to make money.

The Mission is a broad statement which generally refers to the type of business, the products and or services produced, and frequently some indication of quality (e.g., the "best" auto parts supplier in the West). And, the Mission may identify the more specific aspects of the particular firm. Its basic intent is to define why the organization exists, what it hopes to achieve, and perhaps values, essential nature, etc. However, the business has an overriding purpose of making money and growing. Of course it is difficult to rally employees around the profit motive. If you were to say "we're here to make money," instead of "to produce the best tires in America," or "provide top quality healthcare to our patients," it would be inconsistent with a favorable image.

Making Money

Money is the lifeblood of the company. It is essential to survival, growth and well-being.

Businesses make money by selling products and/ or services. Production, quality, customer service, marketing, etc., all have elements of cost and potential savings or profit improvement. The formula is simple: sell more products or services and you have more income. That does not necessarily mean that you make more profit. So the equation must be expanded to include the cost(s) of doing business. Income minus expenses = profit. Management must strategize, and position itself to successfully compete in the marketplace.

Some Considerations

Here are some considerations, or "rules of thumb" to ensure, promote and maintain profitability:

--Keep sales high. (marketing, customer service, production -the 5 P's: Product, Price, Placement, Promotion, People)

--Keep costs low (cost containment, cost reduction, waste reduction, employee involvement).

--Maintain and increase your customer base (customer care, reliability, marketing)

--Protect and enhance your reputation. (dependability, reliability, fair-dealing)

--Be competitive (competitive pricing, product differentiation, state-of-the-art products)

--Consistently improve your products/services (quality assurance, quality control, innovation, benchmarking)

--Increase employee productivity (performance standards, measurement, incentives, efficiency and quality control)

Finally

You may think you already know all of this. And, hopefully you do. But a good refresher is always useful, and it is easy to fall into bad practices. The importance of being cognizant of, and attentive to, your basic business purpose will pay PROFIT dividends (perhaps in more way than one!).