So first off, many people believe that the profit in your business is the amount left over after your business expenses and paying yourself (and staff if you have any). The traditional accounting rule of Income minus Expenses equals your Net Profit (or Loss). While there are other ways to increase your profit, this post is specifically what ideas you can use that profit for.
If you follow the Profit First methodology, you should be allocating a percentage of all revenue towards profit so that you are driving profit intentionally in your business. So what do you do with that profit that builds up? There’s many ways to be strategic about this, but that’s a more indepth personal conversation. So here’s what you can do with the profit you’ve earned (in no order):
- Build your Emergency Fund. I call it a Vault, and I have clients who call it an “Oh Shit” account. It’s all the same thing. You want to continue building this until you have a minimum of 3-6 months of business expenses. Again, this is a general guideline, somewhere to start if you haven’t already. Ultimately, you want to have enough savings that if something happened, you’d have enough to cover all expenses in a timely manner to make a change to your business if needed so that you don’t have to close your doors.
- Give yourself a Profit Distribution. Take 50% of the money you saved towards profit each quarter and pay yourself, sort of like a bonus. However, I want you to celebrate with this payment. Whether it’s grabbing ice cream because you just started and haven’t built it up yet, or taking your family on a 7-day vacation to Hawaii, it should go to some fun in your life. You are rewarding yourself for intentionally driving profit and growing your business.
- Pay off your Business Debt(s). When I refer to debt, I don’t mean the credit card you use to cover all your business expenses and then pay off the balance each month. I’m talking about debts that you’re unable to pay off in full, are possibly charging you interest, and keeping you from investing your money in other areas of your business. This could be a business loan, a credit card that you’re only making minimum payments on, or an auto loan for a business vehicle.
- Save for Big Projects. Maybe there’s something you’ve been wanting to participate in to help grow your business, but you never had enough saved to cover the cost. Maybe you want to open another location, or hire more staff. Maybe you plan to add another product/service and it requires a chunk of change up front. This savings would help you without going (back) into debt.
- Have employees? Why not offer Profit Sharing? If you have hired A-Game players on your team, I’m sure you’d love to reward them. Yes, there’s insurance, and time off, etc, but what if they earned more income because of the work they did (sounds like it may be an incentive as well depending on their role).
- Apply it towards more Personal expenses such as a vacation or car. Looking to take your family on a luxury vacation that you only see on TV, or want to finally buy that red Ferrari you’ve been dying to have since high school? What about paying for your kids college so they don’t have to walk away with 6 figures of student loan debt (like I did)?
- Start a Retirement account in your business or other form of Investment. We’re all in business to make money, so what’s wrong with making more money in multiple streams? Do you want to retire some day or have that as an added benefit to your employees? Would you like to have an(other) investment to help you grow your personal money even more?
- Give back more than ever. I believe that if you have so much in your bank account that you don’t “need” any more, then why not give back? Yes, it is “your” money, so you choose what you want to do with it. But if you’re a multi-millionaire (or billionaire), would it hurt to help others who are in need? Maybe they just need guidance to start on a path to their own wealth.
I’m sure there are many other uses that you can come up with and I’d love to hear them! Send an email to firstname.lastname@example.org of what you are using (or would love to use) your profits for. And if you’re still wondering, what is the idea of driving profit intentionally in your business, then it sounds like we need to have a chat. Feel free to schedule a no-obligation complimentary discovery call and I’ll discuss it in more detail plus answer your questions around finances in business.