Profit & Loss

DOES "PROFIT & LOSS" DRIVE BUSINESS

 

Profit and loss no longer drives business. In fact, profit or loss has never driven business. Business is sustained by providing a relevant required service in or to society. The moment the public declares that service redundant it will cease to be a business opportunity.

 

Once an opportunity is supplied by society, a person or an organization can structure a service to bridge the social opportunity or need. It can then develop a business out of that opportunity. It is the job of that business to run the service profitably for the person or the organization. If the business makes a loss it may mean that the business may not be sustainable in the long run. But if society no longer requires a service, no matter how efficiently the service it provided, or how profitably the business is run, it will collapse in the short run.

 

Before declaring profit or loss, companies should also report on the social opportunity to be able to continue to do business as part of their balance sheet. The question should be; is the company providing a required service? Is the social opportunity to serve or meet a need is declining? The same is as essential for companies that make huge profits as for those that simply get by. Social opportunity may sustain a loss making business while declining need may cause the sudden collapse of a corporate giant. Businesses must keep an eye of profits to measure service efficiency but must also continuously evaluate social opportunity to establish continuity.

 

This raises interesting ethical question about business. Is business a money making machine or is it a leased social opportunity? Our view is that business is much more than this. Business is an entity delivering a social service sustaining its own existence through profiting from economic opportunity.

 

A business can make a loss but that does no mean there is no business. Unless the social opportunity is closed, a decision to close an enterprise is merely a decision to wind up an organization not to wind up a business. Someone else can set up a business on the social opportunity and make hefty profits.

 

Allan Bukusi, 2006