How Bookkeeping Makes Your Small Business More Profitable: Profits and Long Term Planning

So you’re making money and you’re happy… but what do you do next? Let’s discuss how you can use your net income to further your own profitability and lay the groundwork for long-term success!

Managing Profits and Savings

If you made it this far with no debt, you should not only pat yourself on the back, maybe you could tell us your secret - but for most small businesses, the first few years are more about staying afloat and learning the ins and outs of your new dream job. 

Most of us have borrowed in some form or another to make sure we had the cash flow to maintain our business during its infancy. Now that we have secured net income and we understand how to make our services profitable - we can focus on managing our money efficiently! 

If coming up with a Debt Reduction plan wasn’t part of your process for understanding your business expenses, than now is the time to do it! Pay from the highest interest rates first - these will also help free up your emotional energy so you can focus more on your business development.

Next thing to consider - retirement! But this is your dream job and you just started it, why would you need to think about something so far away? Now that you have the ability to smartly allocate the profits from your business, some of that money should be going into your future. Setting up automatic retirement withdrawals from your paychecks (for both you and your employees) is not only wise life planning, it shows that you’re thinking about your whole business.

Speaking of the whole business, how does our newfound understanding of profitability change some of the big picture of our small business?

For starters, now you have a reliable idea of how you’re making your money and where it’s coming from, this means you can start doing more with your money.

If you don’t have a dedicated savings account for your small business, now is the time to start one! Once you’re truly making a profit, you will find yourself dealing with the concept of Retained Earnings - or the net income left over after you have paid out distributions to your shareholders. In some businesses, these “left over” profits may be paid out to shareholders as extra income (frequently as dividends for tax purposes) as return on their investments - but for you, oh they can do so much more!

Your Retained Earning can be invested directly back into your business, and that, my friend, is how you fuel the ongoing development of your business!

Development and Growth

What does development mean for you as a business owner (and not just a worker)?

Your first thought is probably: wow that will be a lot more work for me! 

Well, it will take some work, but you can do that work smarter by doing your research first! There are some universal questions that you need to ask when you decide to grow your business.

We pair development and growth together here because you can’t really separate the two from each other if you’re running a small business. If you want ANY sort of growth, it will require you to develop parts of your business to support and sustain this growth.

Whether you’re looking to expand your services, change your internal process, or break into a new market, the first step is always the same: research!

• Can the work you already do be applied to something new?
• Do you understand who your potential customers would be and how to reach them?
• How viable is your idea?
• Do you have the necessary resources?
• These resources could be, but are not limited to: skill sets, time, risk management, etc
• Can you measure your goal?

How to Set a Goal

OK, ok, you know what a goal is and how to set it… But there’s something special I want you to do. 

When you sit down to decide on your next move as a business owner, set your goals in a way that lets you measure them. This doesn’t really change the type of goal that you can set, but it does change how you approach it. 

You should at least be able to measure the effort and resources that go into your new project. Keep track of all of these measurements, because they will provide you with key data on how to better set goals in the future and how to avoid problems that may arise.

You must create metrics so that you can keep track of your progress and your problems. This will enable to your conduct regular reviews of your work and processes AND keep your accountable to yourself and your staff!

In the land of suits - a lot of measurements revolve around Key Performance Indicators, or KPIs. In your research, you are sure to come across this term - do not let it intimidate you - it’s just a fancy description for the business metrics that you’ve been learning about! We’ll give you some great resources for understanding which KPIs you can apply to your business and why you may choose to use them in our next blog.

We Hope to See you Again!

Wow, we’ve covered a lot of information this month. Catch us next week with a recap on profitability and some great resources to help you on your journey! We’ll also give you the lowdown on KPIs so your research doesn’t leave you with more questions than answers. We’re stoked to hear what new plans you’ve cooked up, so please drop into our Facebook Master Group and tell us about what your most excited to do next!

Disclaimer This article presents general information and is not intended to be tax or legal advice. Refer to IRS publications and discuss possible tax deductions with your tax preparer.