When the profits roll in, reinvest in your firm

Tips For Small Business

June 15, 2008|By Stephen L. Rosenstein

As your business matures, you're likely to see steady profits - success you will want to build on going forward.

Plowing profits back into your company may be the shrewdest move you can make in good times.

Lowering your overhead is a logical place to begin, particularly if your rental payments keep rising. This could be a time to buy your current building or to find one for purchase so that you acquire a mortgage that costs you less per month than renting.

Once you own your location, you can design the layout that will best maximize productivity. Long term, you benefit from having the value of the building on your balance sheet and may be able to protect some of your profits from taxes through the depreciation allowance.

Another approach to building value for your company is taking advantage of down markets to buy additional inventory; securing volume and season-ending discounts; or acquiring better equipment. The latter approach might include computerized and electronic systems that can improve internal processes to enhance productivity.

Another use for excess cash is to invest in financial options. You may decide, for example, that excess funds are best kept in Treasury bills or certificates of deposit, if you keep them there for at least 90 days.

Last, you may want to consider acquiring a smaller company as a way of building your business and expanding market share. Be prepared to learn more about business valuation at the same time you are scrutinizing such assets as property, equipment and inventory.

Be sure you really need them.

Stephen L. Rosenstein is co-chairman of the Greater Baltimore SCORE Chapter No. 3. Call 410-962-2233 to speak to a SCORE counselor or visit www.scorebaltimore.org. To send a question to SCORE, e-mail smallbiz@baltsun.com.

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