John is a perfect example of someone taking a risk and making the right decision.
The importance of Profits
The profit that a company makes is used in three ways
- Part is kept by the company and used for investment. The company may buy new machinery or re-equip a building.
- Part is paid to the government in taxes
- Part is paid out as dividends to shareholders (if there are any)
Benefits of a firm doing well
- If sales are increasing the business becomes more efficient by cutting costs
- Increased sales helps finance the expansion of a business
- The hope of profits encourages people to invest in existing businesses and to start new ones.
- Profit also stimulates business to take risks. For example pharmaceutical companies spend millions of pounds every year developing new drugs in the hope of finding one wonder drug that will sell all over the world.
- In a wider sense, profit helps to make business responsive to consumer demand. If consumers do not but product in sufficient quantities, the manufacturer will not make a profit. The manufacture will then try to find an alternative, more popular product.
I feel that when you have a business, which does very well then you could expand it by having more firms in an area.
Growth of businesses
Growth could lead to higher profits and higher share values, simply because more is being sold. It could also lead to diversification as being in two markets reduces risk. If one firm does badly then the firm can fall back on the profits made by the other firm.
Growth could lead to a reduction in costs. Lower costs would lead to higher costs.
Growth could lead to greater control over the market. The bigger the share of the market that a company has, the more likely it is to be able to exploit monopoly powers - fixing high prices and earning high profits.
Partnerships
With sales increasing there is no reason why firms cant go into partnership.
It is a cheap and easy to form, just requiring a legal contract called a Deed of Partnership;
Having more than one owner should increase the amount of money that can be raised for investment in the business;
There is no need to disclose publicly the accounts of the business;
Partners who do not work in the business can have limited liability.
Hiring more workers
I think that the more workers that are hired the more chance of work getting done more efficiently and quicker. There could even be a pay rise for them, which would keep the workers happier, working harder and more motivated.
Sometimes profit maximisation may not, however be the aim of all firms. In larger firms the managers and directors who run the firm may far be more interested in their own rewards than in the rewards of the shareholders. Directors and managers may be far more interested in receiving bigger salaries, large company cars and spending more time eating expense-paid lunches, than in the earning maximum profits for the shareholders. They do actually have to make profit otherwise they’d lose their jobs. But making enough profit to keep shareholders happy, profit satisfying can be very different from making maximum profits.
Advertising
When you do well then you can afford to spend more on advertising. The more well you are doing the more it deserves to be known by many people as possible. If sales are already doing well then the product is obviously very good so you will just have to persuade new customers into buying the product. Advertising brings different types of people to try new products.
Budgens the local supermarket has continued to sell fresh food, friendly service and value for money for over a century. It now operates over 210 stores ranging in format from supermarkets to forecourt stores. As a company Budgens covers 25 countries including London with over 800,000sq ft of sales space, 6000 staff and serves over 78 million customers a year. This is a typical example of a small business turning into a very large company and still doing very well.
Questionnaire on Budgens
I thought of asking some questions to the local shoppers outside Budgens to see what they think of the supermarket. I went to the Budgens in Marshalswick in the quadrant.
- How do you feel the service is like in Budgens?
Friendly Not very friendly Not helpful Very helpful
- How often do you shop at Budgens?
Everyday Every other day Three times a week Few times a week not very often
- Do you think the supermarket plays an important part for the community
Yes No Don’t know
- Do you feel he prices are reasonable in Budgens?
Yes No Don’t know
- In over the years do you think Budgens has changed for the better or worse
Better Worse Don’t know
- Are you going to carry on buying your shopping at Budgens?
Yes No Maybe
I wrote to Budgens asking for their latest annual reports and accounts but they did not get back to me. I wanted to find out about the aims of the firm’s expansion.
From looking at my results I can see that Budgens is doing very well and are going to keep going. Someday maybe Budgens could even reach as successful as a supermarket like Sainsburys.
Conclusion
I think that for any firm to do really well you must first of all take a risk. Once you have done that then if you succeed in getting a lot of profit then there are many ways in which you could increase that amount of profit a little more. People who do well have strategy and aims to achieve to make profit. To maintain the amount of sales you are doing requires hard work in order to get a large profit.
