The Key Terms in Profitability
A business is clearly defined as any entity or person engaged in business or commercial activities for profit. Businesses may be either for-profit corporations or non-profitable organizations that engage in a variety of activities to meet a specific social objective or further a public charity. In the United States, businesses are organized by states and sometimes by cities. Each state has differing rules and regulations regarding corporations and limited liability. This article focuses on state commercial law and regulations.
Companies can engage in a number of business activities. Some business activities are profit-making activities, while some are nonprofit earning activities. The profit-making objectives of the business organization include the production of tangible goods and services, the employment of workers, and the sale of surplus assets. Non profit earning objectives of the business organization include the promotion of social welfare, the improvement of quality of life through education and other programs, and the support of government programs. The creation and management of intellectual property and advances in technology are also considered as objectives of the business organization.
Every business has a management team and key personnel. A key person is the head of the firm or the president, who is usually the most capable person to direct and organize the firm’s activities. He must be able to set firm goals and determine the firm’s strategies and tactics for achieving those goals. Key persons are generally the owner or the managers of a division or department, the managers of an enterprise, or the managers of a manufacturing unit. Other names given to key people are controllers, executive officers, and sometimes managers.
In order to make good profits, a firm must be able to market its products effectively. Marketing is the process of creating, placing, and promoting goods and services so that consumers will choose to purchase them. A firm’s marketing strategy is usually determined by its product, its location, the prevailing market price, and the firm’s competitors’ marketing strategies. There are several factors which contribute to the profitability of a firm. These include total revenue, the rate at which the firm earns profits, the number of sales, the length of time the firms keep the stock on the market, and the elasticity of the production and sales processes of the firm.
One important method of making profits is through the use of market research. Market research is the study of current and potential market needs and wants. This market research can be done in different ways, such as conducting market research by questionnaire, asking customers and employees, surveying potential customers, studying the market trends, analyzing the productivity and profitability of companies, determining the value of patents and coming up with a competitive analysis. By doing a proper market research, a firm can estimate and provide a realistic revenue forecast. Through this, managers can decide how much they should invest in the company.
Making profits is made possible through effective management of the firm’s resources. This includes properly using management capital, reducing cost, avoiding over-fication, eliminating waste, and efficient use of labor. Other factors that make profit possible includes maximizing the rate of return of capital, increasing the Firmwide productivity, and using market terms wisely (for instance, using the word ‘abundant’ when referring to existing stocks). Also, efficient use of marketing techniques, quality control, and a firm policy of maintaining inventory, direct marketing, and cost savings through efficient shipping. Finally, the government can help support a business’s success by providing certain grants and other forms of assistance and by indirectly promoting certain products.