IS IT ALL ABOUT PROFIT ?

Every day managers are bombarded by numbers: sales
margins, salaries, stock levels, profit, cash, and share
prices – the list is endless. The situation is not helped by
the fact that the mantra from on high regularly changes from
‘increase sales’ to ‘cut costs,’ ‘reduce stock levels,’ ‘improve cash flow,’
‘cut staff,’ or ‘increase profit.’ If only people would make up their
minds! How can you be expected to make sound managerial decisions
when you’re not given clear guidance about what the business
is trying to achieve?
You will be relieved to hear that the primary financial objective
of most businesses rarely changes. What does change is how they try to
achieve that objective. Once you understand what the goal is, the various
methods available for attaining that goal will make a lot more
sense. In this chapter we going to look at the role of profit in business
and also introduce another concept regularly talked about,
cash flow.
What does a business need to survive?
Business is all about trade, and trade can be defined as ‘the activities
of buying and selling.’ Since buying activities involve expenditure
while selling activities involve revenue, it follows that any entity concerned
with the management of revenue and expenditure can be
regarded as a business