April 30, 2015
Understanding making a profit
You earn a profit anytime you make a transaction with someone else whereby you end up with more money than when you started. It could be a penny, or it could be a million dollars. And so, any business transaction where you actually lose money on the deal means that you have made no profit.
Now, here is where it starts to get complicated. You can move around a lot of money and still not have much profit. If you charged hundreds of thousands of dollars and also spent hundreds of thousands of dollars (on equipment, or employees), you may have a very small profit by the end of the year. In fact, you may just barely break even. Remember that the profit is the amount of money above and beyond, so even if you're giving yourself a $100,000 a year salary, the company could be earning a very small profit, or not at all.
Of course, sometimes companies get wildly successful, and bring in way more money than the original investors had imagined. Most investors are happy with earning more than the .04% that banks pay nowadays on CDs. The only investor in my company, of course, has been me. I bought the pencils and pens and drawing paper and computers and printer ink, and all that stuff. I have tried to keep track, and I hope I've done a good job. And I don't pay myself a salary, I just run the business myself and hope that at the end of the day more money is coming in than going out. So, I am a *for profit* company.
I hope this helps. I am a capitalist, as is anyone who owns a business, invests in it, and hopes to take more money in than they invest. Capital is really just another word for money, and that's what I used to buy the keyboard that I am typing on now. I like to believe that I have a good and valuable product, cartoon illustration and Graphic Design, and my confidence is reflected in my willingness to invest it it, both in time and money, which I do. In a broader sense, this is marketing, and what I am doing is really no different than if I were to be standing behind a table in a marketplace. I feel that I have a good product, but it is up to the customer to decide if it's worth what I need to charge for it, to make a profit.
Posted by Brad Hall