The goal of every small business is to grow, thrive and increase profitability. However, once you start earning more money, you may find that you aren't sure what to do with it. If you don't manage your small business cash flow properly, you won't continue to prosper. In the worst cases, poor management of extra cash flow may even harm your business in the long run.
Here are some tips to help you handle the extra cash flow and ensure that your business continues to boom.
- Prepare for the tax consequences.
Earning more profits will often affect your state and federal income tax responsibilities. Not only will the extra profits increase your profitable income, but it may also move you into a higher tax bracket at the end of the year. Make sure that you put enough money away to compensate for the extra taxes you will owe. Alternatively, you can also make strategic investments that lower your taxable income and/or keep you in a lower tax bracket while also benefiting your business.
- Invest in your future.
One of the best ways to ensure that your business continues to be profitable is to invest in the future of the company. Depending on your current situation, this may involve purchasing new products, investing in a new service and/or obtaining new equipment. You may also hire new employees with your extra money to provide your customers with a better quality of service.
- Increase your compensation.
Keeping the best employees on the payroll is important if you want your business to continue to be successful. However, the marketplace is competitive, and businesses often fight over the best people. Consider using your extra cash flow to give your employees a raise and/or provide other benefits of employment that will attract and retain the right candidates.
- Anticipate future expenses.
With the growth of your business also comes increased expenses. In some cases, these extra expenses don't appear immediately. Make sure that you keep enough cash aside to cover these expenses.
- Talk to a professional.
Managing extra cash flow can be difficult and overwhelming, especially when you have so many other things to worry about. If you aren't sure what to do with your sudden influx of cash, consider consulting an accounting professional to help you manage your finances more effectively. A professional will be able to help you make the most of your extra money and handle all of the other financial components of your business, including your taxes, payroll and more.
Do you have the support you need to manage your small business bookkeeping?
Contact us to schedule an appointment to speak with a local small business advisor.