Starting a Business No 6 - Objectives and Profit...?

Your Business Plan will set out a) a mission statement and b) some objectives you want to achieve; they are likely to be business objectives and personal objectives.

Fundamental to any financial objectives will be your pricing startegy. How you set your prices for goods or services will be another part of the Business Plan (1 of the 4 x P's). At the end of the day, however, you will want to make an overall profit.

Consider what you want "profit" to represent - against some possible financial objectives. A property valuer's approach to profit suggests that net profit must cover the following  business and personal objectives, ie for a business person who rents or is intending to rent a commercial or industrial or property. (The approach will suffice for our purposes to illustrate the relationships between profit and objectives.) :

1. A business and personal objective will be establishing and maintaining good terms with HMRC by paying your taxes etc! Income taxation is payable on net taxable income which the business makes and which HMRC will take from you and/or your business;
2. A business and personal objective will be interest on capital invested. You will probably invest your own or borrowed money in a) property, b) plant and machinery, vehicles or other equipment,  c) furniture and d) other items. You will need to pay any interest on: a) borrowed capital (money); and (in principle) b) on any money you personally invest (from savings). It is useful to see this as being at a commercial rate of interest.
3. You will need to cover the salary or wages you would have earned as a manager of your business or by being employed by a rival (set it at the going rate). If you don't earn that in due course, you may as well give up your business and work for another;
4. Finally, a personal objective will be to recognise the risk inherent in running your own business. You are taking a risk in running your own business so you will want a portion (%) of the profit as a reward for your risk-taking.

Of course, you will not necessarily expect to achieve all of 1 to 4 in the first year: indeed your business may take several years to become established. Once it is established your might check that the business and personal objectives are being achieved - at least in financial terms!