In my journey as an entrepreneur and educator, enabling others to become entrepreneurs, much discussion has ensued over profit highlighting many misconceptions about its place and use.
Profit, especially in the non-profit world, is a big NO! In small business many believe that their salaries come out of profit. And then there’s the association between profit and capitalism – another word which, in some quarters, has negative connotations.
Perhaps if we understood what profit really means, its place and value, we might have a different perspective.
Firstly, every business needs to make a profit in order for it to become sustainable and to grow. When a business grows it needs extra supplies and workers, contributing positively to the local economy and creating jobs. In South Africa today, one hears that the Government has to and will create jobs. But it’s not the Government main focus to create jobs; that belongs to Business. Government’s task is to provide and ensure an enabling environment to make it easier for Business to do business, make a profit and grow the economy.
Secondly there is often a misunderstanding around the use of profit in business, especially in the small business and emerging entrepreneurial sectors. Here there is often a common belief that the owner’s salary comes from profit. No it doesn’t. When it comes to costing, profit needs to be cost into the selling price of a product or service, as does the salary of the small business owner (an overhead). If the costing and business management processes are done correctly the business owner will see profit and benefit from it, with stability, growth and prosperity for all concerned.
Another misconception in this sector is that any profit made should go immediately into the pocket of the business owner. A business’s profit belongs to the business first. Yes, there are dividends and profits payable to owners, partners and shareholders in business, but only when there is an excess of income above the needs of the business for stability and growth.
Bearing this in mind perhaps if NGOs applied business concepts to the running of their project – costing out their services correctly, with profit, perhaps they could be sustainable and grow. It’s the way of the future. It can and has been done. It also means viewing their funders as clients and that requires a total mind-shift for both funders and NGOs.
And then there’s the profit – capitalism link.
If you know a little about world history, in 1978 (after almost 20 years of poverty) Deng Xiaopeng, a Chinese Revolutionary and veteran of the Communist Party, was eager to adopt capitalist methods and reforms in order to stimulate economic growth and restore confidence in the party. After signing an historic accord in 1979 with the US leader Jimmy Carter, he launched several economic reforms and due to these reforms China has gone from a country that opposed capitalism to one that embraces property rights, profits and free market competition. It is indisputably one of the strongest economies in the world today.
Makes you think? I hope so.