Just like in “The Candidate,” when Robert Redford finally achieves his goal of elected office only to realize he doesn’t know what to do with the victory, small-business owners who have focused on profitability and worked against great odds for so long to achieve it, are often stumped once they actually see black on the bottom line. What do we do with a surplus? What’s the smartest thing to do? What would be fun? What would be foolhardy? Is that idea off the wall or on the mark?
Breaking into the black is an exciting but critical time in the life of a business. It will prompt innumerable questions like these. Relax. And go back to where it all started-your business plan.
Revise that plan to fit your future direction and new goals. In fact, make your business plan a living, breathing part of your enterprise. Identify the key factors of your success and prioritize them. Then you can look at the variety of options available as you decide just what to do once profits are a part of your culture. Here are five options to consider:
1. Savings plan/investment account. This concept is similar to personal savings-setting aside something for that rainy day. A cash or investment fund establishes internal stability. It gives you the flexibility to run with new and innovative ideas.
If you want to invest funds for capital growth, the decision about where the money should be invested is driven by your goals. Some of the questions to consider when deciding on long-term vs. short-term investments are: Is the money designated for a specific project? If so, what is the timing on the project? Is it necessary to have immediate access to the funds? Can the business afford to invest the money to maximize productivity?
2. Technology. Nearly every business today is affected by technology of one type or another. That technology, whether it’s using the Internet for e-mail, a computerized ordering system, voice-mail, or faxing, affects the efficiency of operations. You have to look at what additional or upgraded technology is necessary to keep pace with your competitors and improve internal functions. This is long-term investing. It’s a way to increase the profits over time.
3. Employees. Just as machinery and technology are necessary to the future of the company itself, so, too, are the employees. Considering the value of your employees is imperative. Various tax-advantaged savings plans are available today that benefit both the employee and the company.
Many of these company-sponsored programs have additional features that allow a business to make matching contributions and offer profit-sharing features. Of course, the traditional ways of showing appreciation, such as pay increases and bonuses, are still applicable and should be considered.
4. Customers. To grow your business and to retain your customer base, consider reinvesting a portion of the profits into improving services and/or products. And just making those improvements isn’t enough. Current and potential customers have to be aware of them. That means you must also allocate funds for marketing and public relations.
5. Owner. Though you, the owner, are usually the last to benefit from a business’ profitability, don’t overlook investing in a deferred compensation plan and/or a bonus structure for yourself. The business owner has a long-term interest in the future of the company that will eventually provide personal stability. Keys to securing that include profitability and productivity.
Another key is planning. Though liquidation or sale may seem an impossibility, or at least a long way off, plan for the taxes involved in such an eventuality. The implications of these situations can be enormous, so don’t ignore them even as you are building the business.
Goals, goals, goals…past, present and future are, in the end, the determining factor for deployment of any profits. When you generate profits and can make informed decisions about how to use those profits, you begin a cycle that can benefit everyone involved in the company for many years to come. After all, good business equals profits; profits equal the ability to make investments; good investments equal good business; and, of course, good business equals profits.
Carrie Coghill is executive vice president/financial adviser and a founding member of D.B. Root & Company. She is a certified financial planner and registered investment adviser.
