Profit is one of the most important indicators of how well your business is doing
The main goal of every business owner is to make a profit, which can be either reinvested in the business or paid out as dividends.
It´s especially important to small businesses that have limited access to debt finance and need profit to grow (buy better equipment, open new stores, develop new products, enter new markets, etc.).
Monitoring your profitability will help you
Understand Profit Drivers
Behind changes in profitability can be changes in customer demand, raw material prices, staff wages, overheads, etc. Knowing the profit drivers helps you take timely actions to prevent further decrease or ensure profits continue to grow.
Identify Profitable Customers
Many sales don´t always translate into great profits. This is what many small businesses overlook, and as a result, spend too much time providing unprofitable products and services or serving unprofitable customers.
You’ll find it much easier to secure a bank loan or attract a private investor if you can show a good understanding of your profits. For them, it’s a sign that you´ll be able to repay the loan and provide a good return on investment.