Why are profits important?

Jun 10, 2020 | Business Support

Dictionary definitions of the word profit tend to include such synonyms as “advantage”, “financial gain” and “financial advantage”.

Longer explanations might say: the difference between the amount earned and the amount spent in buying, operating, or producing something. 

All true to some degree.

A wider definition might include that profits facilitate economic growth if they are used to invest in the businesses that create them.

An issue we may face as we emerge from lock-down is the urge to hoard cash resources. There is nothing quite like the challenge that COVID-19 has created to reawaken the primal instinct to keep wool on your back.

Saving funds in response to these challenges would seem to work against the likelihood that we will recover, instead, they assume the opposite that we will not recover.

Conversely, profits reinvested will strengthen our ability to trade. And in this sense, making profits takes on a completely different role than simply swelling bank deposit accounts.

Initially, as we emerge from lock-down, planning for profits will need to include – for many businesses – the funding of losses where these are necessary to rebuild and re-establish market share. 

Regaining profitability is a worthwhile planning objective, Obviously, unless this can be achieved a sustainable future is unlikely. What you do with those profits should also be a key ingredient in your planning process.