TC: PLAN FOR PROFIT & WHAT TO DO WITH IT
You put together a budget for this month and guess what, your income exceeded your projections and your expense did not. There may actually be a little money left over for other things.
This is when the small business owner, including independent contractors (those who work on a commission), reach out for “self-reward” such as new car or an expensive vacation. The use of this monthly excess is really not a profit. A profit comes about when all the existing needs of a company are taken care of.
Your challenge today is to do a self-evaluation of your company in areas other than the day to day survival:
- Company reserve: How much do you have in your reserve account? For small businesses I recommend a minimum of three months operating expenses (this includes your salary). A separate account is encouraged and it should be “paid” along with all the other reoccurring expenses.
- Retirement account: like a company reserve account, a contribution to your retirement account should also be made to each month. Visit with your Certified Financial Planner and work out an amount needed and then pay monthly, as needed, to reach your goal.
- Replacement account: nothing lasts forever, especially in today’s market where many things are designed to either become functionally obsolete or to “break down” in a few years. Estimate the remaining life of all the equipment you use in your business including computers, printers, smart phones, trucks, etc. that are vital to your business operation. This then becomes another separate account that must be “fed” in order to have the replacement funds available when needed.
These three areas are critical to both your business’s long term survival and your own retirement plans. If you don’t have these three “accounts” set up, start them this week and insert them into your monthly expense budget.
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