The main purpose of most businesses is to earn a profit and provide the owners and stakeholders with a positive return on any of their investments into the firm. While a profit is the remaining revenue a company has after it’s paid its expenses, it doesn’t (and shouldn’t) always mean it’s money that should be put directly into the CEO’s pockets. Financial management for organizations is absolutely vital for the continuation of a firm and, all too often, the lack of it is the reason why so many small businesses fail.
According to Business Insider, a US Bank study concluded that 82% of all businesses closed due to poor cash flow - more money going out than coming in. In the same study, 29% of businesses also reported running out of money altogether. The truth is that organizational profits need to be reinvested back into the company. This is especially true in the early years of a business as 50% of all businesses close in the first five years.
Of course, when investing back into your company having cash on hand, money which is available to you immediately or can be liquidated fairly quickly, is important. This can help offset slow cash flow during months when sales are lower than normal, help mitigate inconveniences and emergencies, and support other decisions within the business that require capital investment. However, putting aside cash isn’t the only “investment” firms can make into their organization.
Investments that make you money - As stated before, most businesses’ main objective is to make money. Most people also understand that in order to make significant amounts of money there has to be some sort of financial backing behind those endeavors. By using the money your organization is already producing to funnel into money generating investments such as marketing campaigns, you can scale your business without the interest that comes with loans or the risk of giving up equity to investors.
Investments that save you money - Making money is usually a plus for any business, but only to the extent that the profit is also growing. When making more money, businesses also often find themselves spending more as well. If overall revenue is increasing, but profits are on the decline, something is wrong. Making investments that save money is also important for businesses to consider. This could include hiring an accountant who can help you keep a better eye on your cash flow or switching to a technology platform that integrates several moving pieces of your system at a reduced cost. Sometimes businesses will also have to spend a little more money in order to save a lot more down the road.
Investments that make you more productive - Productivity can be defined as an increase in effectiveness, the ability to work better, and efficiency, the ability to get more done using fewer resources. By increasing business productivity, business leaders should find themselves having more output with less labor. But just like saving money, investments into productivity can come with a price tag. For instance, the goal of hiring employees is to delegate tasks that aren’t feasible for one person to take on, to get more work done, and to have people using their talents in the best way possible. While employees can also end up being the most costly expenses a business can acquire, a firm can only grow so much while being run and operated by just one person.
Investments that make you more knowledgeable - Acquiring new job-related knowledge is also an important investment for business leaders and professionals to make. Courses, programs, and certifications can help you gain skills that help improve performance, become a better leader, expand service offerings and more, while demonstrating your commitment to developing your expertise to existing clients. While the ROI on education is often hard to measure, it is generally accepted that it does have tremendous benefits that, in the long-term, can help you make money, save money, or become more productive overall at work.
In order to run, and ultimately grow, your company, it will require you to put earned profits back into your company whether it’s to increase your working capital or to make your business scalable or more efficient. The Vieras can help you with the latter. Whether it’s our marketing, administrative, or financial services, we can help you boost your productivity even if you’re not ready to take on your own full time employees. Learn more about our services and how we can help your business succeed today!