There are innumerable obstacles that arise for entrepreneurs starting their own businesses, but chief among them is how to manage whatever money might be available. Naturally, the first time that this issue comes up is at the very beginning, when investment capital, loans, or even personal savings must be properly used for different aspects of the business. But once a business is up and running and past the point at which it can be abandoned or drastically changed, issues with money management persist.
Earlier this month, we posted an article on Smart Saving & Clever Investment Tips. One of the tips was understanding your money flow, and knowing where your cash is going. That post was written with regard to managing personal finances, but the same concept is incredibly important for businesses, where it’s vital to understand exactly where any and all available capital is being used. For amateur entrepreneurs or first-time business owners, it can be difficult to design any sort of detailed approach to the specific use of funds, with the prevailing sentiment being that whatever cash is available will be used as necessary at a given time. Just as this won’t get the job done for an initial investment or loan, however, it’s also an inadequate strategy for the use of eventual profits gained by the business.
That’s right! At some point your small business may attain profitability, and at that point you’ll face a new financial issue: what to do with the gains. At some point, of course, you’ll hope to simply pocket a significant portion of the profits as personal income. But at least in the early stages of profitability, it is often more prudent to use any “excess” capital for the continued development of the business. Here are a few ways you can go about doing exactly that.
Direct Reinvestment
Direct reinvestment can be a tricky concept for small business owners, because in some ways it basically means improving things that weren’t done perfectly the first time around. Or to simplify, it can mean going back to the initial business plan and approaching it anew, with the business already started and some profits on hand. Consider the extensive outline for a business plan provide by Forbes, in which various categories such as marketing strategy, customer and competitor understanding, financial strategy, and many others are addressed in detail. These are the categories that can be addressed a second time around once you have profits. For example, if your business could stand to attract more customers, you might spend to improve your marketing strategy; if you’ve struggled to hire employees for specific tasks, spend on human resources improvement. The specific practice will vary depending on the company, but reinvesting essentially means going over your business plan with a fresh perspective and spending accordingly.
External Investment
In a 2012 article at Biz Filings about managing cash surplus in a business, it was suggested that one sound strategy for managing excess cash is to look for various investment vehicles outside the business. Indeed, this can provide you with additional financial security as well as potential earnings that exceed ordinary interest in bank accounts, etc. One such investment that can be particularly appealing to small business owners is the purchase of gold or silver bullion. Generally perceived as means of protecting finances against deflation or poor investment, rather than as an ambitious reach for an income stream, investment in precious commodities provides a straightforward option for business owners. If this sounds like an option you might consider, you can go even further outside the box, so to speak, by going about it through an independent gold investment site online,
as this can save costs. At Bullion Vault, it’s explained that sites like these cut the cost of gold ownership and management by eliminating currency conversion, offering up-to-date prices, and saving on insurance and storage rates. This is ultimately just one example but it’s a good indication of the type of low-cost and relatively low-risk investment that can benefit a growing business.
Optimise Business Practices
The idea of optimising business practices is a broad one, and in some respects it goes hand-in-hand with the idea of reinvesting cash in the business. More than improving advertising practices, paying employees, improving margins or stocking inventory, however, optimisation is tied more specifically to the technological side of a business, and specifically IT practices. The aforementioned Express article makes note of the financial savings that can be generated by outsourcing IT (rather than setting up an in-house IT division). While there’s no correct way of going about it for businesses in general, this concept is worthy of exploration. Paying for external IT services, digital security, and even cloud storage for business-related files can be cheaper than managing these aspects of a company in-house, and in some cases you can use excess profits to go about setting it all up.
