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What is your business plan’s ethical statement on profit?

Guest post by: Michiel Jonker

Article Overview: What is your stand on money and, more specifically, profit? This is an important question as it will determine how you write your business plan but also how you set the tone of your business plan. And your business plan will determine your company’s future (i.e. either business success… or failure). So, what do you think about profit? Allow me to discuss my opinion.

What is your business plan’s ethical statement on profit?

In the past few years a lot of focus has been placed on the issue of too much pressure on companies to show profit - especially in the big corporate world. Unfortunately, this idea started to turn up in some small businesses' business plans. Profit became a dirty word and focus is placed on mission and vision statements... The rationale behind this "campaign" is that too much pressure to show profit forces executives to commit "management fraud"; that is to fiddle around with financial results, the way financial results are presented etc. etc. This debate was the result of wide ranging management fraud in well known companies.

Though, as a risk and control expert, I agree that too much pressure can result in unethical management activities and fraud in order to show a profit (and to receive bonuses!), a negative result of this campaign is that profit is considered a "bad thing"... or rather a subject that should not be mentioned in certain circles. Business risk experts started to talk about "adding value to the business" instead of talking about protecting the company's profits!

As small and medium business owners we need to know that profit is NOT a dirty word! Business is about making a profit in a legal way. The bottom line of reducing your business risks is that you want to make sure that the money you have received through trade activities, is not going to leak out (i.e. that profit erosion is not going to occur)! If we going to treat the idea of profit as a political incorrect view or statement, our business plans will reflect this sentiment in one or another way.

I do not underrate your good intentions to provide your customers with high quality services or products! You need to deliver high standards at all times. Your mission statement in your business plan is important ("...we strive to provide our customers with high quality... so that they may enjoy...")

And yes, profit is not everything and it is a satisfying experience to fulfill your mission and vision (e.g. to have a vision to contribute to the spiritual welfare and socio-economic development of people across the world).

However, PROFIT should be CENTRAL to your definition of what constitutes business success to you. By the way, in order to fulfill your social responsibility role, it is of the utmost importance that your business is profitable!

If you are not in it for the profit, you are running a social welfare organization!

To make a profit, is the ultimate test for any business (and business plan!) - sooner or later, your business has to be profitable! You may even have a cash flow. However, be careful! What/who is the source of that cash flow? If it is your bank or investor's money, it is not yet a profit. Some day your bank manager/investor will draw the line if you have not generated profits from sales! Eventually, your total income must exceed your total expenses.

This is the bottom-line!

In my opinion small and medium business owners need to focus on MAKING a profit (instead of showing a profit!). REAL profit, in a legal way - WHILE providing in the REAL needs of people and the public.

By keeping this in mind, small and medium entrepreneurs shall not wander away as their BIG Brothers and Sisters did in the recent past by specializing in showing a profit!

And of course, your business plan needs to be very clear about this subject. You need to illustrate to your investors how you will PROFIT from your business opportunities AND risks!

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Article Tags: business ethical statement, business failure, business plan, business profit, business success



Related Forum Posts
Re: Will you budget your business in 2012? - [quote="MichelleJ":3w54t2k7][quote="ideasuniversity":3w54t2k7]I have already set my budget for 2012. This will help my business to grow. A business without a yearly budget will spend some of the income impulsively and it may destroy future projects[/quote:3w54t2k7] This is very true Yinka and without a budget or income and expense account you will not know whether you are making a profit or not. MichelleJ[/quote:3w54t2k7] And we need to know if we are making profit and progress. If not we then adjust our plans
Mission & Vision Statements - Oops my bad. A mission statement is for employees as well. Author of "Strategic Management: Concepts and Cases", Fred R. David says "The mission statement answers the question 'What is our business,'" while "the vision statement answers the question 'What do we want to become?'" (60). Furthermore, "A good mission statement reveals an organization's customers; products or services; markets; technology; concern for survival, growth, profitability; philosophy; self-concept; concern for public image; and concern for employees" (73).
Re: Mission & Vision Statements - [quote="BuzzAroundBooks":18511jx0]Oops my bad. A mission statement is for employees as well. Author of "Strategic Management: Concepts and Cases", Fred R. David says "The mission statement answers the question 'What is our business,'" while "the vision statement answers the question 'What do we want to become?'" (60). Furthermore, "A good mission statement reveals an organization's customers; products or services; markets; technology; concern for survival, growth, profitability; philosophy; self-concept; concern for public image; and concern for employees" (73).[/quote:18511jx0] Often when I'm researching a company, I'll look for their mission statement. Its a great way for an outsider or a potential employee to find out more about the business, to learn their goals and what they offer. As a potential employee, this is an interesting way to see if its a company that you would like to be involved with. Shri
Try wikipedia.com for more information - Try reading the description posted on wikipedia.com - search business plans. All business plans are different, so it is hard to tell you what to put in to your plan without knowing your business.
Re: Interrealtionship between financial statements - Hi there, It is not necessary to post each transaction in all of the separate financial statements. In any given transaction, you will post an equal amount of debits and credits to the associated accounts. An example would be if you were to write a check for $500 to office depot for office supplies. The posted transaction would be: DEBIT Office Supplies $500.00 CREDIT Bank Account $500.00 Once the transaction is posted, it will automatically show up on the appropriate financial statement report. In the above example, you would find the Bank Account transaction on the balance sheet and the office supplies transaction on the profit and loss statement. I hope this is clear! Please let me know if you have any other bookkeeping questions. I would be happy to help, Stephanie Horne


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