Business – Profit Maximization
Business is the act of earning or creating money by purchasing or producing and selling goods or services. Simply put, it’s “any undertaking or activity entered into for gain.” The business’s distinguishing characteristics are that it requires investment, specialization, or talent; it provides a service or product to the public at some specific point in time; it creates a surplus that can be re-distributed as security for loans, and it involves risk. In the modern world, the activities performed by businesses constitute the foundation of a modern economy.
Nearly every aspect of business operations today has evolved through entrepreneurship, market creation, organization, process, and asset disposal.
As part of the process of creating profits and extending the size of the Firm, entrepreneurs engage in activities that involve the exchange of their present goods and services with others, the transfer of proprietary rights, and the transfer of liabilities.
Among the most important of these is the transfer of liabilities. A firm can create debts by creating or repaying its liabilities by borrowing money, selling its property, or hiring out the entire business organization. A firm’s liabilities will include claims against it, the proceeds of the sale of its assets, and its future payments for goods or services provided.
Business owners must always remember that liabilities are still a consequence of actions or inactions of a firm.
A firm that is not able to maximize its profits, in the long run, will either dry up or liquidate itself. Firms must understand that to profit. They need to know their prices, know their customers, know their competition, know their suppliers, know how to advertise, how to organize production, understand their financial resources, and have an overall understanding of the market. Thus, aside from having a sound business plan and setting aside enough capital to finance the start-up and operating expenses of the Firm, business owners must also make sure that they know what kind of profits to expect for each unit of sales, in terms of both gross and net profit.