In all business undertakings in the private sector, the main motive is to earn profit. Profit is the driving force before and after entering into the business field. Infact profit is the oil which drives the wheels of business. Profit is the total revenue from sales minus the total cost of resources employed by the entrepreneur.
Role of Profit in Business
The role of profit in business can be judged from the following points.
1. Sources of Income
Investors invest their money in the business with the sole purpose of earning profit, since profit is a source of income, it is therefore provides the owners of business the mean with which they and their family members can live a comfortable life.
2. Continuity of Business
The incentive of earning profit keeps the man engaged in business activities. A business can only grow and gain strength if it earns profit. So earning of profit is necessary for the continuity of business.
3. Expansion of Business
One of the roles of profit in business is that businessman retains and reinvests a part of its profits in business undertaking stands on sound footing. It can expand and diversify business not only from reinvestment of funds but also getting loans from external sources for business.
4. Reward of Risk Bearing
Profit is the reward for bringing new products or processes to the market. It is a reward for a risk successfully undertaken. Profit, therefore, is a reward for the future which is uncertain.
5. Profit and Economic Development
Another role of profit in business is economic development. Profit and economic development are closely related with each other. If the firms are not earning profit then there is no economic progress in the country. If there is no economic development there is no profit to the business.
6. Profit Acts as Measure of Efficiency
Profit acts as an index of performance for business, if the business firms are earning profits. It shows that the country is progressing satisfactorily
Is Earning the Sole Objective of Business
If I ask the question, is earning the sole objective of business? The answer will be Profit maximization and earning is not the sole objective of business. A business which is mainly motivated for the making of money seldom grow well in the long run and never commands respect in the society. A business should earn profit but not to ignore:
- The provision of quality goods at reasonable prices to the consumers
- Payment of all due taxes to the government treasury
- Generating and offering good remuneration to its employees
- Provision of hygienic working conditions
- Contributing to the general welfare of the society