Financial Intelligence for Entrepreneurs: What You Really Need to Know About the Numbers

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Profit Is an Estimate

In a familiar phrase generally attributed to Peter Drucker, profit is the sovereign criterion of the enterprise. The use of the word sovereign is right on the money. A profitable company charts its own course. If your company is profitable, you can run it the way you want to. When a company stops being profitable, other people—lenders, outside investors, suppliers, even customers—begin to poke their noses into the business. The company loses its autonomy.

Another familiar saying, this one attributed to Laurence J. Peter of The Peter Principle, tells us that if we don’t know where we’re going, we’ll probably end up somewhere else. If you don’t know how to make your company profitable, you’re unlikely to succeed in doing ...