Protect Your Profits So You Can Pamper Your Progeny

Nobody wants to raise a spoilt brat. We want our kids to understand and appreciate the value of what they have and why it’s neither reasonable nor practical for them to have whatever they want whenever they want it. After all, we want to ensure that they’ll grow up into financially responsible adults one day. That said, it can be utterly heartbreaking when, despite your working every hour God sends, you have to look them in the eye and tell them that they can’t have that one, not at all unreasonable thing that they really, really want. It’s no wonder that so many parents get themselves into crippling debt around Christmas time. It’s pretty much worth it for many, so long as they don’t have to see that crushing look of disappointment when it seems like Santa has forgotten all about them this year.

Image: alphalight1

That’s why it’s so frustrating when our jobs place such strict limitations on our income. They freeze our wages, so that they don’t rise in line with inflation, meaning that with each and every year our money is worth less in real terms even if it remains the same on paper. They deny us paid overtime, they restrict paid leave and they pass us up for promotion time after time. It’s no wonder that so many turn to entrepreneurship to smash the glass ceiling placed over their potential earnings. If they get it right, they’ll have crafted a lifeline for their personal and familial finances. If they get it wrong, at least they can say they tried and failed on their own terms. Plus, having run your own business will at least make you more attractive to prospective future employers.

Of course, when we enter into the world of entrepreneurship from the world of salaried work, it can be jarring. We no longer have a stable income on which we can rely and our fates are tied intrinsically to those of our nascent enterprises. If we’re to protect our family’s financial wellbeing and ensure that we can spoil our kids every now and then when they really deserve it, it’s vitally important that we take steps to protect our profits, especially in those all important early stages. While your first year or so of entrepreneurship is as much about survival as anything else, and the learning curve is steep, your early years also allow you the opportunity to lay a strong foundation for the future. Follow this advice, protect your profits and you’ll be able to ensure that your profits stay robust in your early years and every year.

Investing while cutting costs. It’s a fine line!

One of the finest lines nascent businesses walk is that between investing enough in their business to facilitate easy operations, ongoing prosperity and sustainable growth and managing overhead costs so that they don’t tie up all of your assets, effectively crippling your business. While this is a difficult balancing act, it is achievable. For every capital investment you make, it’s important to consider its fiscal multiplier. This is the amount of economic activity this purchase will generate relative to its cost. Let’s say that you buy a product wholesale that you intend to sell at a 30% profit. The fiscal multiplier for this that product is 0.3. If you purchase a piece of equipment that will increase productivity by 200%, it’s fiscal multiplier is 2. Determining an overhead cost’s fiscal multiplier can be complicated. Some areas of spending may begin to pay for themselves more quickly than others others. Others may pay for themselves in more circuitous ways. Refurbishing your premises to make it more aesthetically appealing, for example, will certainly enhance the customer experience, but it’s difficult to quantify the extent to which it drives profitability.

By rule of thumb, the following areas of spending are proven to be effective for small businesses;

  • Capital investments- Tools, equipment, software, or a bargain priced batch of stock. It all drives productivity or profitability so it’s a pretty safe bet.
  • Digital marketing- What’s the point in being the best if nobody knows who you are? While it’s possible to cultivate a large and loyal following organically through social media platforms this can be a clumsy and time consuming process if you don’t have a marketing background. Since marketing costs tend to have a 1:5 investment: return ratio they’re among the safest bets you can make
  • Personnel and development- You may be the driving force behind your business but your employees are a huge part of what keeps it ticking over. Invest in recruiting, training and developing talented individuals and you will reap the dividends for years to come.

Just remember that protecting your profits lies not only in where you invest, but how much. Very often the difference between prudent and wasteful spending is simply a matter of how much you spend.

Image: Bruno

Maintain healthy cash flow

As your business progresses, it will inevitably encounter opportunities that could lead to sustainable growth and larger long term profits. These may come in the form of a piece of equipment that’s going for a song in a liquidation auction, a software upgrade that could increase productivity or even a better located premises with increased foot traffic. You’d be mad to miss out on one of these opportunities, but without a healthy cash flow you could be left with no choice but to let them pass you by.

You can maintain a healthy cash flow by incentivizing prompt payments. Give your clients a discount or some other form of incentive when they settle their accounts quickly. Incentivize your employees to identify and capitalize on upselling opportunities so that your assets are not tied up in stock. Moreover, don’t be afraid to throw a quick sale if you need to free up liquid assets quickly. While your profit margins may take a temporary dip, your improved cash flow is worth more than short term profits. Plus, sales have a tendency to drive customer interest and loyalty.

Protect your brand from liability

Your brand is more than just your logo, your slogan or the cute mascot you invented with a team of graphic designers. Your brand makes a promise, and that promise is inextricably linked to your mission statement. Your brand is what will keep your customers coming back to you again and again because they know it represents a standard and a set of principles that they take for granted. Thus, nothing can be allowed to compromise your brand. Yet, without the right insurance, your brand could be forever tarnished. If a customer should slip and injure themselves on the shop floor because you mopped yet failed to put up a sign, you’re liable. If an employee should injure themselves because they haven’t been correctly briefed on how to do their job within the parameters of health and safety, you’re liable. Thus, it’s essential that you not only take appropriate measures to prevent these things from happening, you must also get the right insurance from a company like Equify to ensure that even if, despite your best efforts, they do happen, your business is insulated from most of the risk. You will be able to pay your employees worker’s comp and indemnity payments or defend yourself against potentially damaging litigation while still being able to keep your business running.

Guard against cyber threats

Of course, employees and disgruntled customers aren’t the only potential threats to your profits against which you must protect yourself. Every year cyber security threats become increasingly sophisticated and commonplace. While we tend not to hear about them until they come into contact with big business (or even the UK’s NHS), they have the potential to bring at risk small businesses to their knees. As such, while insulating yourself from cyber security risks may be another unwelcome overhead, it’s vitally important in protecting your profits and the security of your business.

Ransomware is amongst the biggest cyber threats that small businesses face and it’s vital that you have the infrastructure to prevent it. Make sure that you backup your data somewhere secure, preferably using a cloud based solution (cloud based storage is ultimately much better value for money than using servers which need to be constantly upgraded anyway). It’s also a good idea to invest in a comprehensive anti virus software package and make sure that it’s regularly upgraded. Ransomware is a persistent threat with new strains being created all the time, so this year’s protection may not be adequate next year. Since Ransomware can be transmitted via Bluetooth (aka blueborne vulnerability) it’s important that you vet the devices used by employees as much as possible and invest in cyber liability insurance to ensure that your business is not brought to its knees in the event of a ransomware attack.

While the price may be eternal vigilance and a constant eye on the bottom line, it’s a small price to pay for the freedom and potential uncapped earnings that you could enjoy when you liberate yourself from the world of work and become an entrepreneur. By building on a strong foundation you can ensure a prosperous business and pampered little ones for years to come!

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