Dealing with profits 101

There’s no greater feeling for a business owner than that of being in a strong financial position and turning a healthy profit.  

A profit and loss statement is a great way of determining how your business is going, as it will summarise the performance of the business over a period of time, usually annually.

A financial planner can help in many ways with your business. Including working with your accountant in the preparation and analysis of your financial results and whether changes need to be made.

Financial planners are able to help consider how your business fits in with your overall financial plan and whether there are opportunities to (1) maximise your profits and (2) better utilise your profits.

Below are five tips for making choices with the business profit:

1. Reduce your debt

It might sound like a simple suggestion; however often paying off debt is the last consideration when it comes to dealing with profit. A financial planner can determine how much you owe from your financial loans and the best course of action. Loans with higher interest rates will be the first consideration, as extra repayments will mean the overall interest paid on that loan will be reduced.

2. Review your business insurances / business succession plan

Many businesses fail to protect the business or the people working in the business in the form of business insurance. This includes insuring the business premises, business assets but it also includes insuring the people operating the business such as you.

A financial planner can help you review your insurance policies and identify the key people in the business and what insurance cover needs to be considered to protect the business in the event of illness or injury.

A further consideration is business succession planning, what are your plans when you want to retire?

3. Re-Invest back into the business

So the company is doing well, your business’ financial future is looking bright but how should you spend that money?

Financial planners can help you determine whether you need to re-invest back into the business in the areas of updating capital equipment, improving technology solutions within the business such as point-of-sale equipment or whether the business premises needs a renovation.

It’s important to do some research prior to spending, to ensure you’re getting the most out of the profit. Compare retailers online to find the most competitive prices and to reduce the amount of money you’re spending from your profit.

4. Expand the business

Expanding the business may be a consideration for those that have owned their business for a while. You may consider hiring more staff or beginning a second business. Often working on your website by hiring an experienced web developer is a good way of using profits to expand the business.

Opening another location is another option that is tempting for those experiencing regular growth. It’s advisable to ensure growth has been consistent over a number of years. Look into a business plan drawn up by a financial planner, to ensure the opening of the new location runs smoothly.

5. Select the right investments

Now that your business is in surplus you may be more comfortable looking into investment options. With a financial planner you can create an investment strategy, where the financial planner can help manage the investments and inform you of any changes in the market. It’s important to set up financial goals so that you can determine the length of the investment and the level of risk you’re comfortable with.

There are many ways to spend your hard earned business profit. Whether that’s through extra equipment for the business, reducing the business debt or pursuing new investments, it’s important to know your options.

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