1.7 Role of Profit in Business

Profit is the main aim of every business. It is the driving force of business. The following factors highlight the importance of profit in business.



1. It is the means of livelihood for the businessman

It is the source of income for the businessman. Without profit a business cannot survive. No one can work without any kind of reward for long. Thus if there is no profit, there will be no business in the long run.



2. Source of funds for the growth

Part of profit can become source of funds for the future growth. When the business earns good profits reasonable part of this profit can be invested back into the business. Additional investment is required in business from time to time for expansion and growth, diversification of production or to introduce latest technology. Profit as a source of finance is more dependable than external sources.



3. Index of performance

Profit is an indicator of the efficiency of management. The success of a business is judged by the amount of profit it generates from the capital investment.



4. Reward for risk bearing

Profit is considered the reward for risk bearing. A businessman invests his money in the hope of earning profit. In spite of all the risks involved in business, opportunity for earning good profit induces a businessman to take that risk.



5. Better remuneration to workers

A business earning good profits can afford to give better salaries and offer better service conditions to employees. This will make the workers more loyal and efficient, which in turn will contribute to more profit.



6. Reputation, prestige

Profitable business earns reputation and prestige. It can raise credit facilities easily. Adequate finance will enable the business to tap the full potential of existing market or product line or explore more attractive opportunities.