Congratulations! Your small business has finally clawed itself out of the red and into the black, and is finally making a profit. Most businesses spend years in the red, and when the finally see positive numbers on their balance sheets, owners must stop to re-evaluate their future plans in order to stay profitable and grow. What are some things that small business owners should consider?
Adjust Future Projections and Increase Shareholder ValueNow that your company is finally earning a profit, your investors - whether private or public - will want to know the value of their stakes. Always report earnings on schedule, with comprehensive financial results preferably audited by a reliable auditor. Forward projections should not be grandiose and far-fetched; rather, they should be realistic - understating expectations and exceeding them is far better than overstating expectations and missing them. If your company continues to be profitable, consider using the excess cash to buy back shares or offer dividends. This shows your investors that you are committed to increasing shareholder value.
Slow and Steady Wins the RaceOnce many companies achieve profitability, they begin to charge ahead, attempting to grow far too quickly in an attempt to generate unrealistic returns. Expanding in an undisciplined manner can result in a loss of quality control, a collapse of the management flowchart, and liabilities far outweighing assets. In short, your company becomes top heavy and hard to manage. Increasing your company's weight is no guarantee of profitability. While you many generate more gross revenue, margins may actually decrease due to increased real estate, equipment and labor costs. This results in less profits being earned for an exponential increase in work. Expand into new locations only when you are sure your headquarters can support the added weight and can maintain operational oversight.
In addition, undisciplined acquisitions - Silicon Valley's most popular pasttime - can drain your cash reserves and decimate your margins if the acquired company's products fit poorly with your own. Disciplined acquisitions are accomplished by carefully researching vertical and horizontal integration possibilities, and the true market value of the company and its assets.
Reward Yourself... . in ModerationWe've already discussed rewarding shareholders, but you should also reward your employees and yourself to increase company loyalty. Issuing employee stock options will keep them dedicated to increasing the company's profitability, while performance-based bonuses will encourage them to increase product quality. Refrain from giving yourself or your top executives massive bonuses, especially in times of poor performance. We all remember the poor PR that Wall Street's biggest banks attracted with their shameful executive "golden parachutes" - a grimy example of corporate irresponsibility and irrationality. Your company should reward itself when it performs well, but cut back on bonuses when it fails to meet your expectations.
If your company is publicly traded, be careful when selling shares. Top executives repeatedly unloading shares can easily be seen as a sign of weakness and sink your company. Issuing new shares and diluting existing ones to raise capital can also anger shareholders and be seen as a mark of desperation.