The “what next” phase of turning a profit is an area where many businesses are hovering in uncertainty
Robert R. Salotto, partner and mortgage consultant with Strategic Funding in Cherry Hill, knows that some months are just “off” months. That’s why when he and his business partner turn a profit, they make sure some of that goes toward a safety reserve of at least six months. “That way, if business is slow, we have a safety net of cash still available,” says Salotto, who adds that he’s always very careful with what he does with his money. The downturn in the economy has only reinforced that philosophy.
Still, many business owners aren’t sure what to do after they turn a profit. Do they take some for themselves? Reinvest it in the business? Or is that the time to give some to employees? Making the right decision can seem challenging—particularly when businesses are keeping a tighter rein on finances.
As SHM Financial’s Stan Molotsky puts it, there isn’t one solid answer because each business is different. However, there is one thing that doesn’t change. The No. 1 priority remains investing in your personal future.
“You really have to start looking to put money aside for yourself, or if possible, for the employees, for some sort of profit sharing or an IRA kind of program,” Molotsky says. “You need to take care of these things for yourself.”
That is what Molotsky says they emphasize with their clients, whether doctors, lawyers, dentists or mom-and-pop business owners. “With that excess profit, put it aside for yourself to help supplement retirement. You have to do it sooner rather than later. Even if you’re 35 or 40, you do it with a little bit at a time, little steps. That’s critical.”
But, along with concentrating on the future, you can’t forget about the here and now. While Molotsky says it’s tough, and seems impossible at times, it’s essential to do both. You have to plow money back into the business to ensure its growth, and you have to invest in your employees because they will help ensure continued success.
Some for You
Many small businesses want to reinvest everything they make right back into the business to help it grow. While that can be tempting, Joel I. Steele, of Steele Financial Solutions in Cherry Hill, says you need to make sure you’re taking a salary out of your profits. “I’m a big believer that if you’re fortunate enough to have success and make money, that you need to pay yourself first,” he says. “Everyone wants to reinvest in their business, but if it doesn’t work out, and you didn’t pay yourself, all that work could be for nothing. Whether you’re a new business or have been around for a while, you need to make sure you carve out some of that money for you.”
This is something that Steele has first-hand experience in. Having started a restaurant business right out of college with some inheritance money he received, he was putting everything back into the business—ultimately growing to three locations—but it was more than he could sustain. After going through the inheritance, plus some loans, it all collapsed. Steele says it “sucked the life and money out of him.” But now, as a financial advisor, he has first-hand experience in making wise business decisions.
“I am now a firm believer in growth by being cautiously optimistic,” Steele says. “You need to have the ability to pay the bills if you run into a bad month or even a bad quarter. You want your business to grow but you don’t want to build it on sticks. Build it on pillars so that it’s sturdy enough to handle tough times.”
Some for Employees
Though meeting your own needs as the business owner is critical, employees can’t be ignored. “I believe that if you support employees, they’ll in turn be very loyal and support you,” says Suzy Egan, an investment advisor with Woloshin Investment Management in Medford, and director of WIM for Women, a service aimed at meeting the unique financial needs of women. “Many are happy to just have a job in this economy, but if you can give them a little bit extra, that’s something they’ll remember when things turn around. Obviously, pay yourself first, but then reward those that deserve it.”
John Torrence, of Masso-Torrence Wealth Management, agrees. Plus, he says, investing in your employees’ future as well as your own might not be as onerous as you’d expect. “Clearly, putting in a retirement plan which emphasizes a profit-sharing pool builds great morale among employees. … Especially in this time when people are concerned with what Social Security and Medicare will be like in the future, if the employer is making a contribution on their behalf, it’s a tremendous incentive for the employees.”
It’s important, Torrence stresses, that you aren’t the only one who can see past the current economic times. Your employees also need to see the light at the end of the tunnel.
Torrence says to remember to prioritize¬: Meet your own financial obligations first; look to see where leftover money will have the most return to invest it back into the business; and make sure your employees feel they have an incentive to ensure the money you invest is utilized to its fullest extent.
The bottom line is that caution is key and making smart financial moves means putting thought and care into your decisions. Salotto says he operates under the “old school rule” that “cash is king.” “I always have cash on hand because I never know what will happen,” he says. “You also have to look at the long run. A lot of people live month to month but I am always trying to look to the future. I try to be smart with my money. Like anything in life, it’s about making good decisions.”
Published (and copyrighted) in South Jersey Biz, Volume 1, Issue 10 (October, 2011).
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