A business is defined as any entity or an individual conducting business that has one or more of the characteristics of any trade or profession. A business can be privately owned, publicly traded, or privately operated. The word “business” also denotes the structured activities and efforts of people to make and sale goods and services for earning a profit.
Many businesses have goals or objectives. They can be long term or short term. Business strategies are based on research and analysis conducted to identify the key stakeholders in the organization and the sources of market competition. Key stakeholders include customers, employees, suppliers, government and other regulatory agencies, and other local, regional and international players. These key stakeholders form the basis of the relationships that exist between various business units.
In order to create value for their customers, employees, suppliers and other stakeholders, businesses must have an effective structure for operations, including a management team, the structure of the business process, marketing strategy, business plan, and financial strategy. Effective organizational designs will enable firms to build, operate, and manage as effectively as possible. Most importantly, successful firms must deliver value to their customers. Firms that do not make a profit may lose the loyalty of those who depend on the firm for important services or products.
One way to achieve profit maximization is through better timing of market entry. Timing refers to the ability of a firm to enter into a given market at a time when it is most advantageous to do so. Entry should be done at a point when the firm can create new value for its customers and also leverage the existing value of the firm. The value of the firm’s existing output, minus the costs of creating that output, lessen the cost of capitalization. Profit is the difference between total revenue and the cost of capitalization divided by total assets.
One of the keys to maximizing profits is the identification of opportunities to create value and the determination of the appropriate means to realize those opportunities. Firm research and analysis must be done to determine where the value in the organization lies. This involves identifying and measuring key terms and concepts that relate to the firm, the industry it serves, and the competitors. Once the identified key terms and concepts are known, managers can determine how to best use the existing resources in a way to realize those value-added opportunities. A firm’s operation, sales, marketing, production and financial systems all have to be managed as efficiently as possible.
Maximizing profits means that a firm should maximize its net income (after expenses, net income including reinvestment). If there are any opportunities to increase gross margin (after expenses, net income including reinvestment), the firm should pursue those opportunities. Otherwise, the company should continue to maximize its normal profit by reducing costs. The key terms and concepts that a firm should measure, identify and measure our total revenue, cost of goods sold, current and historical prices, and current and historical gross profit.