How to make a return

In order to for a business to succeed it needs to make a satisfactory return on any money initially invested in it, be it by those running it or other investors.

The Successful Entrepreneur's Guidbook by Colin Barrow, Robert Brown and Liz Clarke outlines

four objectives to this.

1. The company should make enough profit to let the company grow. For a business to expand its sales it must acquire more and more working capital and eventually more space. This expansion is best achieved through internally generated profits known as reserves.

2. The return should be substantial enough to attract new investors or lenders.

3. The return should provide enough reserves to keep the real capital intact. In order to make a large enough sum of money to maintain the capital one must make sure that inflation is taken into account. If a business retains enough profits each year to meet a 3% growth when inflation is 4% then it is in fact contracting by 1% every year.

4. If your business has shareholders you must make sure they are getting a good return. If the business is speculative and the profits are less than bank interest rates, then your shareholders won't be pleased.