The phrase “don’t let money burn a hole in your pocket” is a cautionary reminder for businesses to exercise prudence and strategic decision-making when managing money and profits in their business.
While taking profits out of the business for private use is the very reason for creating your own business, some factors require further consideration.
This is a conversation my clients hate with a passion but…let’s have it anyway!
(You will thank me later).
If you want to grow your business, you need money. Retaining profits is a way to do this.
- A common rule is to put approximately 15% back into marketing (this percentage may vary slightly between industries). This is to help take the business to the next level and capitalise on the profitable year prior.
- Developing yourself professionally or up-skilling your staff will create better efficiencies, confidence in the operation and ultimately staff retention.
- Being able to offer competitive salaries will attract and retain talented staff which will only help your business to grow.
- Retaining profits will help to provide you with long-term sustainability. It can help you build stronger foundations that will stand the test of time.
- Retaining profits within the business can help when these pesky unexpected downturns happen. I remember when the GFC happened back in 2008, my business experienced foreign exchange losses, cost rises and volume decreases all at the same time. Thankfully, I had enough reserve profit that I was able to invest heavily into marketing. As businesses around me closed, we were able to hold on, ride out the bad period and come out stronger on the other side.
- Being able to invest in new machinery or the latest technology (without incurring heavy interest) will help keep you innovative and competitive in the marketplace.
So, when you think, “I deserve that Rolex” or “I really want that Porsche”...think about what that money can buy for the business.
Think about the systems you can implement or the staff you can invest in. This will allow you to take that holiday you always wanted and know that the business won’t fall to pieces without you there.
Streamline your processes so each hour of the day is used correctly.
Purchase that machine that can cut production times.
Create that campaign that will introduce your business to a new market.
Up-skill your staff and see how the morale changes or retention increases.
Invest in yourself and gain new leadership traits so you can work ON not IN the business.
All this re-investing will give you more than momentary satisfaction. It will provide your business with the longevity it deserves.
To gain clarity and accuracy of your profit margins and maximise your business results.
