Profit is described as the positive dissimilarity between sales revenues and costs. Profits are assessed after a certain trading time period which could be monthly or yearly depending on the sort of business and the policies. It should not be lost that the main aim of a business is to make huge profits at the end of trading period. During the trading period it may, however, be acknowledged the business faces hardships in carrying out business transactions due to shortage of cash. Profits are a perfect indicator of business work. It may be so disappointing for a businessman to invest money just to realize losses at the end of the trading period. People wouldn’t bother investing in some business, which doesn’t yield profits at all.
Profit making is an important aim towards business evolvement and growth. Without profits, a company may go to a point of stagnation. Moreover, profits assist in ensuring the lasting survival of a company by being capable to meet various expenditures and going smooth during times of economic downturn. Profit is also important in meeting social and personal requirements of the trader. It assists the company in offering better services to clients and personnel. Profit also serves as a business success indicator.
In conclusion, though the key objective of starting a business is to get profits, it’s vital to realize that without cash operations are bound to come to the standstill. This is the very initial step towards the demise of the company. Without cash inflows to the business, it may not meet its current expenses. Business may also make profits, yet it may lack money to settle business operations before credit sales are paid for.
Managers must be capable to manage the cash flows efficiently so as to be capable to pay the employee salaries and settle other daily or monthly payments on time without depending on the goods sold on credit. What’s more, there is no point in making high profits from credit sale if the company can’t uphold itself before the credit sale payments are settled. Business owners should, however, also guarantee there is no excess cash than required. This could be reinvested in the business to obtain more profits for the company. Cash is, therefore, more important of the two.