The Role of Profits in Business - Essay Example

The more an entrepreneur forecasts more profits, the more investments he makes which in turn leads to the creation of more employment. Profits are essential for the survivals of business-profits are necessary for the growth and survival of any business enterprise. • Profits indicate efficiency-profit is a tool that measures the efficiency of any business. Thus the success of any business is judged by its profit-earning capacity.

• Profits are reserves for meeting future contingencies-businesses are mostly subject to many uncertainties and risks such as increased competition, sudden changes in customer preferences, changes in government regulation, and so on. It is a time as such when profits are used to meet such unfavorable difficulties in business.
• Profits have the effect of increasing business volume-profit retention is generally the internal source of capital. This can be utilized for increasing business volumes through diversification and expansion. Thus the portion of profits business is plowed back for future and further development.

The following people could be interested in profits for the business; shareholders need more profits since they expect higher returns in the form of dividends. Employees too are entitled to profits in terms of bonuses and increased pay perks since they contributed to the same.

2. A government regulates businesses for public welfare and safety to avoid malpractices by greedy investors. The second reason is to protect the industry and ensure the security and protection of those who operate their business correctly. Regulation will ensure there are proper inspections by the government to weed out criminal or undesirable practices, licensing, and proper permits. The third reason for regulation is revenue generation businesses pay for licenses and certificates to operate. This creates revenue for the government.

The advantages of regulation include protection of the society from unscrupulous business people who could harm citizens. It also ensures there is healthy competition leading to lower prices for goods and services. Regulation is disadvantageous because consumers could be charged more for commodities and services due to taxation and the increased cost of doing business.

3. A business should be as efficient as possible to reduce wastage and maximize its profits. An efficient business uses fewer inputs and produces more outputs, thus increasing its profits and value to the shareholders and also its competitiveness in the market. The shareholders and employees of the business usually benefit when a business is efficient and competitors are harmed by an efficient business since they may be forced out of business, sooner or later. Read More