4 Ways to Manage Business Profits to Continue to Grow
One of the main goals of someone running a business is to make business profits. Each type of business certainly has a different level of profit. However, no matter how big the benefits are – if it is not managed properly – it can backfire for your business.
Vice versa, even though the profits of your business may be small, if it is managed professionally, you will be able to grow your business in the future.
In managing business profits, you need to divide these profits into at least four parts, namely:
- Advantages for business development
- Profits for reserve funds
- Profits for rotated capital
- Profits for personal use
- To understand the four parts, consider the following explanation.
1. Business Benefits for Business Development
An ideal business continues to grow over time. You can also do this by setting aside a portion of your profits for business development. You need to take at least 10% of the profits every year, or if you intend to grow your business faster you can increase the amount.
You can use the funds taken from this profit to upgrade your business components, for example, infrastructure development, improving the quality of human resources, improving IT systems, opening new branches, and so on.
For the funds you collect to continue to grow, you need to invest the money in several instruments such as deposits, securities, gold, and so on.
2. Business Benefits for the Reserve Fund
A reserve fund or emergency fund is a fund that is specially prepared to anticipate emergency conditions that may occur in your business. In other words, these funds should only be used if you face an urgent situation.
In the business world, there are a lot of risks that you will face in the future. Therefore, you must have a reserve fund just in case. You can allocate about 20% of the business profits each year.
Ideally, reserve funds are kept in regular savings so that they are more liquid. That way, you will always be ready if you have to face an emergency at any time.
3. Business Benefits for Rotated Capital
About 50% (or as needed) of your business profits should be reused as capital. This capital will later be used for operating costs of your company, such as buying stock of goods, paying employee salaries, or other expenses related to the business you run. The capital requirements of each business may be different, so you need to adapt it to your current business conditions.
4. Business Benefits for Personal Use
You have the right to take part in the benefits you get for personal use. Think of it as a reward for your hard work running a business. Indeed, if you don’t take this money, your business will likely grow much faster. However, later you will not know how big the financial burden your business is.
To know exactly how much is the correct allocation for the four sections above, you need to do the calculations very carefully. That way, your company’s cash flow is well maintained and your business existence will be more secure.
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