Profits are the end goal for most businesses. They indicate that the company has been successful enough to earn money in excess of their expenses. Don’t take your hand off the wheel just because your business is turning a profit.
Profits are an opportunity to cultivate further growth and boost your business’ long-term viability. If you are seeking ideas for how to use your business profits to guarantee future success, consider the following strategies.
Route Profits Into Compensation According To Business Type
As a business owner, you deserve to be paid for the work that you have invested in the company’s growth. Your business’ industry and type should guide your choices. In a sole proprietorship, income is paid directly to you. However, other types of incorporation, like C Corps, require you to pay yourself in the form of a salary.
If you have employees, consider routing some of the profits into raises for them as well. This boosts employee morale and encourages a robust company culture of trust that can improve your services going forward. However, be careful not to allocate 100% of profits to employee salary each quarter or year; this could leave you in a tight position if profits fall and rob you of other powerful growth opportunities.
Outsource the Least Desirable Tasks
Every business is driven by background tasks like bookkeeping and scheduling. If you are turning a profit, you can eliminate some of these time-consuming in-house tasks by spending a portion of your profits on outsourced resources that can do the tasks for you. Not only will this free up your time to pursue business-expanding projects, it can also boost your attitude and overall business outlook.
Establish (Or Grow) An Emergency Fund
Every business should maintain an emergency or rainy day fund. The assets here should be readily available, so do not tie up all of your savings in certificates of deposit or other savings vessels with a predefined term. Instead, consider investing a percentage of your profits each quarter or year into a high yield savings account.
Not only will you benefit from interest accumulation to help your liquid assets keep pace with inflation, but you will be able to access this money at a moment’s notice should an emergency arise. This can help you avoid debt and remain adaptive in your business management.
Invest in the Continued Growth of the Business
Investing your profits is one of the smartest things you can do with them, and this list has already covered some options—such as giving employees a raise. Putting the profits to work within your business – rather than stowing them in index funds – can bolster your business to new heights.
Whether investment means spending money on marketing campaigns or purchasing better equipment, the money you earn can be used to foster a repeating cycle of growth and additional income.
That being said, there is value in committing a portion of your profits to investment vehicles like mutual funds. A financial advisor can help you determine the best option suited to your needs and long-term goals.
Eliminate Or Reduce the Business’ Debt Obligations
Debt is not necessarily evil. It can help your business build credit and secure more favorable terms in the future—as long as you are paying your obligations on time. Remain vigilant as you manage your debt, and consider using your profits to pay it down.
Whether you use your profits to pay the full balance, or you allocate extra money each month to hasten your debt repayment, you can use your profits to pull your business out of the red. Read the fine print for your loans and credit cards to verify if early payoff or extra payments incur an additional fee.
Trust The Experts To Help You Plan Your Business’ Financial Success
Profit management can be stressful, given the limitless options for how to utilize that money. The good news is that you can always turn to a professional who has years of experience helping businesses just like yours.
The experts at Inflection Advisors would be happy to help you develop a strategy for maximizing the value of your profits and achieving your financial goals. Reach out to learn more or to set up an appointment.