Often when people are starting a new business, they have spent some time examining their goals and purposes. They look at short- and long-term dreams they want to achieve with this business and they also examine why they are doing it. For many it fulfills some basic drive they have had for a long time. Or it provides an outlet for something creative they have longed to do.
I’ve seen them list out all their goals and all their purposes for the business and really try to spell out what they want to achieve and how they are going to go about it.
I remember a time or two looking at such lists and finding out that “making a profit” was NOT on their list of goals. Or “to make a profit” was NOT on their list of purposes for the business. In each case I asked about it. Responses varied but included things like a knee-jerk reaction against the idea or statement that they are doing this for profit–like there’s something wrong with that. “I don’t do this for the money!” is what goes along with that. It sounds very noble and probably is, but it’s not very practical or sustainable.
In fact, I’ve seen business owners who sacrifice their own paycheck in order to keep payroll met and doors open. They feel so strongly about this they do not give themselves a paycheck much less experience a profit. And they even become apathetic about the business’ success, often feeling beholden to all the people who work there, the taxman, the power company, the landlord and every other demand for money. The idea of “profit” seems unreal and they sometimes somehow feel undeserving.
Profit is defined as “the amount by which a business’ income exceeds its expenditures and costs.” A company’s net profit is what is left after all the expenses related to manufacturing, production and selling are deducted. What is left over goes directly to the owners of a company or the shareholders.
Investopedia states, “Profit, for any company, is the primary goal.” Now that may be a shock to the business owners I described above. So, we can say it this way: along with all your other goals and purposes, profit is a goal and a purpose and needs to be stated at the outset of the business activity so it’s clear and agreed upon along with the other goals and purposes of that company.
There are different ways a business can be set up and your CPA can help you determine how you get paid. But in a simple S Corporation a business owner who is involved in the day-to-day running of the business is considered an employee and may take a salary. This becomes part of the business’ expenses and is not part of the profit from the business. His salary is part of the payroll expense.
Now I go over that because it can be confusing and thus you should have the guidance of a good CPA who can help set things up to enable you to make a profit.
And you CAN make a profit and you SHOULD make a profit. It takes good organization skills—and that’s something that can be learned. It takes great public relations and marketing. It takes an awesome sales and delivery team with a good product to sell and deliver. All of these subjects can be learned. Given that, and enough oomph from Management, a profit can be made.
So, it’s a good idea to examine your own thoughts and ideas about profit—your profit. And make sure YOU are okay with making a profit. Then take the steps to set it up and really take the breaks off. It begins with your own ideas on the subject and your desire to flourish and prosper.