It is important that earning profit should not be the sole aim of any business. Still, the fact remains, that every business is conducted for earning a profit, Importance of profit cannot be ignored because, without profit, a business cannot achieve any objective. Profit is a reward for taking risks and for investing time, money, and energy in the business.
Without profit, any business cannot survive in the highly competitive business world.
You might be the best product or service provider but unless you make any profit out of it, it’s not gonna help you to grow
In this role of profit in business, you help you to realize and highlight the key points to know the benefits of profit in your business
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Role of Profit:
Survival of business
During the initial stage, the survival of any business is difficult due to the lack of experience and ever-changing market conditions.
If the business keeps earning some profit then also it can survive and try for better But, if it starts incurring losses then the businessman will have to close his activity. Thus, the very existence of any business depends upon its profits.
Income to satisfy needs
Business is an economic activity that is started for earning money. A businessman can satisfy his family’s needs only if he earns a profit.
The reward for risk-taking
Business is conducted in order to earn profit but there is no certainty of profit as risk IS inevitable in every business businessman invests capital in the business and also takes the risk of incurring losses. Profit is like getting a reward for accepting risk in the business.
Availability of funds
If a business organization earns profit regularly then it can create savings and wealth of business. Funds can be made available during emergencies. Similarly, a profit-earning concern can achieve a good reputation in society. Thus, it becomes easy to raise funds even from the market by selling shares or by taking loans. In short, profits make the funds available from internal as well as from external sources.
Growth and Expansion
Mere sunrival is not the aim of any business organization. It wants to expand its activities at the national and international levels. Growth and expansion may be in the form of opening new branches over a wide area or offering various types of goods and services simultaneously. It is possible only if adequate profits are available.
Profits facilitate payment of dues, salaries, bills, etc in time. So, regularity in the supply of material, electricity, etc is certain. Similarly, motivation of the employees is guaranteed it finally leads to an increase in the overall efficiency of the organization.
Satisfaction of interest groups
A business organization operates in society. It depends upon the society, government, customers, employees, etc. for its successful business operations. These factors are known as interest groups. Profits allow a business unit to fulfill the expectations of all these interest groups. It can pay good dividends, supply quality products, pay taxes in time and offer a good salary to satisfy them.
Index of Performance
Profits work as an indicator that tells whether the performance of a business is good or bad. Higher profits talk about the efficiency of the management whereas lower profits act as a warning bell for management.
Research and Development
Regular profits help the owners of the business to invest money in R & D and to go for innovation and development. It is helpful not only for the business but also for the whole nation.