So you wake up one morning and there it is, staring back at you from the cells of your budget spreadsheet — profit. Imagine that.
All of the late nights, years of strategic planning and altering of mindsets for how you think about profit in the first place have finally paid off. Literally. Now, with the excess change at your disposal, the real questions is what do you do with it?
The good news is, you have options; ones that vary depending on what your short and long-term goals might be. Here at Officeheads, we like to group these choices for what your company can do with profit into 4 different categories. They breakdown as follows:
Pay down debt
How much do you want to pay off versus how much you want to take for yourself? This is where weighing the short-term vs. long-term comes into play, as well as understanding the type of debt you’ve acquired. Because while paying yourself more may be personally beneficial, you may end up pocketing more money in the long run by paying down debt and avoiding costly interest charges.
Reinvest in your company
Do you need to hire new staff or buy new computers? This is where understanding metrics like employee utilization can come in especially handy. If you’re able to pinpoint areas across departments that — with greater concern for efficiency — would directly impact your company’s top-line growth for the future, putting money back into better tools and resources is certainly worth considering.
Make sure you have enough savings
Our rule-of-thumb here is that you should have 3X the amount of your operating expenses in the bank. For example, if you spend $20,000 a month on payroll, you should be striving to maintain $60,000 in the bank. That way, if you end up finding yourself in a temporary crunch due to the loss of a client or otherwise, you may not have to immediately stress over issues of cash flow.
Give a profit distribution to your shareholders — YOURSELF included!
Think of profit distributions to shareholders (i.e. YOU) as the ultimate gift for all of the hard work associated with being an entrepreneur. After all, large corporations reward their shareholders with a portion of profit gained—why shouldn’t you?
Do you see how just a simple change in the approach to your profit can put you in a better position to make choices in a far more purposeful way?
You really can decide what you want your profit to be, as long as you take responsibility for making those decisions strategically. And here’s the best part: When you know you have choices around profitability, you’ll start to feel far more empowered and prepared for what’s ahead than ever before.
It’s an outcome and an emotion in entrepreneurs that we love having an influence on at Officeheads. Experience it for yourself — give us a call at 847.866.8877 or schedule a video chat with our CEO, Rebecca Berneck, here.