What is it to be a business? To most people, the definition of a business is associated with jobs and income-earning potential. A business is further broken down into a structure (ownership structure) and four core functions: marketing, selling, distribution, and financial management. A business can be privately held by one person/team/organization or publicly traded (for-profit) by many stakeholders.
A firm’s business plan provides the direction for how the firm will go about pursuing its goals and objectives. A business plan represents a legal structure for how a company decides how to organize, buy, and manage its assets, liabilities, and revenues so that it can carry on its planned activities and make a profit. A firm’s business plan must be prepared in consultation with legal counsel and, if necessary, peer review by an independent board of accountants, or other professionals qualified in financial matters. When preparing a business plan, firms must consider the current and future marketplace, as well as potential obstacles to their plans. The preparation of a business plan requires thorough market research, an analysis of competitors, and accurate forecasts of customer demand.
A firm should conduct a wide-ranging market research to identify market needs. Market research is the process of gathering information about what people need and want. Then a firm can serve those needs by providing goods and/or services that meet the consumers’ needs. Firms that successfully market research will have a significantly increased chance of achieving higher profits and higher market share.
Many business owners make the mistake of focusing only on profits without taking into consideration the importance of corporate social responsibility and environmental friendliness. Corporate social responsibility is essential because it drives everything else. Companies that promote a socially responsible business model are likely to enjoy a stronger economy and higher profits. On the other hand, companies that engage in practices that damage the environment are seen as irresponsible and are unlikely to attract consumers. Taking key points from these two areas can help businesses focus on both profit and social responsibility.
As stated earlier, companies must analyze the products and services they intend to sell to determine their profitability. A good starting step for this task is to look at the market to identify key terms that potential customers will use to describe their product or service. A firm can use key terms to create advertisements, marketing campaigns, or websites. Key terms may also be used internally to describe certain actions or process. Once a firm has identified key terms that capture the essence of its business, it can begin to develop advertising, marketing, and web-based strategies. All of these strategies will support higher revenues and a larger profit margin.
One important point to remember regarding maximizing profits is that stockholders need to understand how the corporation will use its profits to enrich them, as well. Businesses should always try to build an investment portfolio that will allow them to benefit if the company does not perform. A balanced portfolio should include appropriate investments in both public and private markets. This includes companies that are mature and stable, as well as those with strong balance sheets. Allocating funds to a portfolio that serves the needs of the stakeholders is the best way for businesses to increase profits and reduce risk.
Another important area to consider when seeking to enhance the bottom line is the social responsibility of the firm. All businesses should strive to make sure their social endeavors benefit the stakeholders as well as the overall economy. Social programs are usually designed to benefit the stakeholders directly – such as the local community, employees, and customers. Many businesses also provide opportunities for social learning and social action for workers and their families. For example, many hospitals and community colleges offer job training and employment opportunities for workers who have experienced trauma.
By identifying and addressing issues related to profit maximization, businesses can increase their profits and build an image of success for the overall firm. Profit and loss issues should never be ignored or left alone. If managers fail to act, businesses could suffer from a series of negative consequences. Ultimately, these consequences will lead to the failure of the firm and its owners. In order to avoid this problem, managers should take a holistic approach to business management that focuses on the entire enterprise rather than simply focusing on profitability.