7 Things to Do With Your Small Business Profit
In the early stages, most small business owners face difficult times. The thought, will I ever make profits? Will my business get off the ground? These questions may linger in the minds of business owners in the beginning.
The ultimate goal for any business is taking off and making profits. When the day comes to spend the profits from your small business, it may be helpful to know how. If this sounds like you, here are 7 things to do with your small business profit.
7 Things to Do with Your Small Business Profit
7 things to do with your business profits.
1. Save the Profits for a Rainy Day
Although you’re meant to enjoy the profits from your startup, it may be a better business idea to consider saving the money. Since the future of any business is uncertain, you can save the profits to ensure you have enough for a rainy day. You need sufficient funds to cover emergencies or a revenue slowdown.
Some questions to guide you include: Can I keep the lights on when business is slow? Will my team members' wages and vendors' still be paid when business is down?
Your business is small and growing, but you should consider keeping enough money close to your working capital for the day you hit a rough patch. Saving money for the business ensures its longevity, even during tough times.
2. Reinvest to Grow the Business
As a small business owner, ploughing back profits into the business boosts growth and expansion. Regardless of the size of your business, you can channel a certain percentage of the profits to improving it.
Some of the undertakings you can do include purchasing new equipment, improving infrastructure, enhancing customer service, or scaling business operations. Reinvesting profits into a business early on will eventually increase profit margins while expanding business operations faster.
3. Pay a Debt
You may have incurred debts at high percentages when putting up your new business venture. Thus, if you had to borrow, consider paying your debt in entirety or a part of it. After paying your high-interest debts, you can present your up-to-date financial records to lenders for refinancing.
Getting lenders to fund your profitable business at a lower rate is easier because you’re not a high-risk borrower. Paying the debt principal allows you to pay less interest throughout the loan lifetime, saving you money. Plus, with a lower debt load in your business, you improve its creditworthiness for the future.
4. Invest in Marketing Strategies
Marketing is the core of any business, ensuring growth and making it a worthwhile investment.
Today, everything is digital, including how businesses are run, whether it’s an ecommerce or brick-and-mortar establishment. Thus, investing in digital marketing strategies will present your business to potential clients online. How else to reach a wider market than the internet, right?
Effective marketing strategies will put your business in the public eye and increase its value. Small businesses will benefit from digital marketing, as their investment will create awareness, drive traffic, and increase sales.
Tracking digital campaigns is easy since there’s real-time data from the campaign, and making changes whenever possible.
5. Invest in Your Team
As your business grows, the need for a good workforce must be stressed more. Building a better team can improve productivity and streamline operations.
How do you INVEST in your team? You can invest in your team by offering relevant training to upgrade their capabilities. Offering workers training to upgrade them boosts their morale to perform duties better.
Additionally, you can recruit new professionals to support your workforce, improve productivity, and increase efficiency.
6. Improve Yourself
Another way to spend your small business profits is to pay yourself. After all, you deserve a pat on the back for putting everything together. However, it’s not that easy; spending company money on yourself can be complicated, depending on the business's legal structure.
Let’s demystify these complexities:
For a sole proprietorship, all the business profits are available as income. As for a C Corp, a director can take money out as a salary. Once profits trickle in, you can pay yourself or hike team member wages. But, you should increase team member wages reasonably to ensure you don’t cripple future growth opportunities for your company.
A partnership with multiple owners must agree on what to do with the profits by holding a meeting to get a majority vote.
Before taking money out of the company as a salary, talk to a tax advisor to understand how the money will be taxed. If your income attracts a higher tax rate than your business’s income, it may be better to stick with a salary and increase your company's value.
Depending on the numbers involved, a high salary for a company director could decrease the company’s tax liability. You need to talk to a professional to ensure you do this right.
Besides paying yourself a salary or bonus, a dividend is another alternative to spending your small business profits. What is a dividend? A dividend is a payment made to shareholders in a C Corp from company profits. Shares are in different categories, but when there’s only one type, all shareholders get dividends equivalent to ownership.
7. Do All the Above
Depending on the amount of your small business's profits, all the above are possible ways to spend them. Your business goals will guide you on how to spend the profits appropriately. However, if you need professional help spending business profits, consulting with a tax professional will do the trick. As for pass-through business entities, you pay tax on your income, while for a C Corp, the business pays tax on the profits.
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Frequently Asked Questions
How can I double the profits of my business?
You can double your business profits by not spending all the earnings simultaneously. You should have an emergency fund to cover the business on a rainy day. When business is down, you can spend the saved cash to pay wages or vendors.
What can I do with my small business profits?
There are multiple ways to spend your small business profits, like paying a salary or bonus, paying your debts, paying dividends, or reinvesting in the business.
Can I invest my small business profits?
Any small business profits can be reinvested into the company to increase profit margins and influence growth.
What is the safest investment I can make?
The "safest investment" concept varies on various perspectives and trending economic contexts. Investments with minimal risks include government bonds and treasury securities.
What is the one thing I shouldn’t do with my small business profits?
One thing you should avoid doing with your small business profits is diversifying. Expanding your small business can strain you financially, leaving you in debt, which can lead to business closure. Therefore, you should make a wise decision on how to use business profits to ensure they favour the growth of your company in the long run.
In Summary
Every business owner looks forward to the day their company will make profits. If your small business is now making profits, congratulations on the milestone. You’ll want to have things to do with your small business profit. Are you ready? There are several ways to spend small business profits, from paying director salaries or bonuses, dividends, investing in digital marketing or creating a cash buffer. Remember that making profits doesn’t mean it’s time to rest, but it’s time to work harder to ensure the business grows and profits keep coming. Do you have any questions about what to do with your small business profits? Kindly contact an Incorpuk expert here.