What Should You Do with Excess Profits?
by Hal Levenson on Feb 20, 2020 2:12 PM
What should you do with excess profits? It’s a great problem to have but it can also be difficult to navigate. Imagine your business is pushing out excess profits (business owners often dream of such times). What should you do now that you find yourself with a robust bottom line?
Here’s 3 Suggestions for What Should You Do with Excess Profits
1. Place one-third aside for your owners or shareholders as a return on their investment. Make sure you include yourself in order to establish personal financial independence and stability.
2. Keep one-third with the company for future investment. Make sure you properly capitalize the business areas that need attention and will produce results.
3. Put the last third into an employee profit sharing pool. Your people are your greatest asset. You want to ensure they continue to produce for you.
Before you jump in however, take time to evaluate 4 important questions. Your answers will influence your allocation to each of the steps and when you might act.
1. Is your company financially healthy? Calculate the stability (Debt-to-Equity) and liquidity ratios (Current Ratio) for your company.
2. Do you anticipate any large capital expenditures in the near future?
3. Did something happen this past year that makes you think the excess profits are one-time and not repeatable?
4. Will investment into specific business areas and profit sharing motivate your employees to be more engaged?
Every organization has unique goals and issues. Deciding how to invest excess profits is not one-size fits all. Trilogy Partners has a history of posing important questions and guiding its clients to solutions that will make the greatest impact and deliver the highest ROI. If you find yourself in a similar situation, contact us.
About Hal Levenson
Hal Levenson is the Founder and Chief Visionary Officer at Trilogy Partners. Trilogy Partners is an advisory & implementation firm whose mission is to help companies grow and transform. We accomplish this by focusing on 3 critical business areas: Financial, Strategy & People.