The Profit Motive

Thursday, 17 May 2018 11:51   |   Written by BY NELSON LETSHWENE
Profit illustration
Profit illustration

QUESTION:
So many of us entrepreneurs are able to make lots of money, but still end up bankrupt. Is it just a question of lack of financial management or is there more to this than meet the eye?

ANSWER:
When you ask most entrepreneurs as to why they are in business, they will tell you their goal is to make money. That is exactly where they go wrong. The goal of a business is to make a profit. There is a great difference in focus for a person who is trying to make money, and a person who is trying to make a profit. People, whose goal is to make money, easily make lots of money, into the millions. But, as much as they make, they also spend. They are satisfied by large revenues, which is an indicator

that they are making money. They have reached their goals, so they go ahead and spend it, and drive themselves to make some more. The attitude of a person aiming to make a profit is different. From the get go they know that their goal is to keep the money that they make. A profit-focused entrepreneur has a double mission. The first part is to increase revenues. The second part is t

o reduce and control costs, so as to maximise profit. They know that profit is the difference between revenue and costs. Unless you deliberately work on controlling your costs, regardless of how much money you make, it will slip through your fingers.The number one weakness of many entrepreneurs is financial management. Even if you are a great sales person and you can drive revenues through the ro

of, you are not an entrepreneur until you learn such areas of entrepreneurship as financial controls and management. Without such controls, you have a pocket with holes in it, and whatever you put therein, will

leak through the holes. Don’t confuse the skill of management with the skill of accounting. An accountant without management skills will also let money slip through the fingers. Management may include accounting, but it encompasses the ability to manage people who have the skills that you may not have. So, the next important skill for an entrepreneur is people management. This is followed closely by systems management. All of these are put in place for one main reason: to maximise profit.

You are aware that people and systems will help you to make money, and they will cost you money, but they don’t have to take all the money. If you are in business to make money, you probably will. But if you are in business to maximise profit and retain as much as possible, then you would be playing a different entrepreneurial game. Not only will you reinvest your profits into the expansion of your business, you will also begin to ask real questions about where else you can invest your money. Many entrepreneurs never ask questions about investments because they never arrive at a point where they have profits to invest.
Focus on making a profit, not just money. That will lead you to the next level of entrepreneurship.

Nelson Letshwene is the managing consultant at Moedi Financial Training - leaders in personal finance education. He is also the author of The Money Field, and Seven Essential Money Skills. For questions and comments email This email address is being protected from spambots. You need JavaScript enabled to view it. or follow him on twitter @101silverline