The world has gone crazy. Well, it certainly seems that’s the case. Inflation continues to push up prices on just about everything. There’s a hot war in Europe that’s seriously impacting the free flow (and cost) of energy. All of this, not to mention an ongoing labor shortage, materials shortages, and plenty of other madness, wreaking havoc on day-to-day life. Of course, businesses aren’t immune to this madness — particularly small businesses. What this chaos does teach any entrepreneur or current business owner is the importance of retained earnings. But, what are retained earnings and how can small businesses build them up for difficult times that will inevitably unfold in the future? What are Retained Earnings Anyway? Retained earnings are an important part of any business. They are the funds that a company sets aside to cover expenses during tough times or to reinvest in the business. (Like now, when the entire world is topsy turvy and the economic circumstances are unstable and unpredictable, to say the least.) Retained earnings are an important concept in accounting. The term refers to the historical profits earned by a company, minus any dividends it paid in the past. The word “retained” captures the fact that because those earnings were not paid out to shareholders as dividends they were instead retained by the company. For this reason, retained earnings decrease when a company either loses money or pays dividends, and increase when new profits are created. —Investopedia.com During normal circumstances, retained earnings are generally used to expand. Examples include hiring additional employees, purchasing new equipment, bringing in new or more inventory to sell, or even acquiring new commercial property. But, when sales slow and the business isn’t earning enough, retained earnings can be used as savings to bridge the gap. How to Build Up a Business’ Retained Earnings One of the most important aspects of any business is its retained earnings. Retained earnings are funds that a company sets aside to cover expenses during tough times or to reinvest in the business. This money can be critical for businesses when they need to maintain cash flow during difficult periods or invest in new opportunities. There are two main ways to build up retained earnings. The first is to generate profits and reinvest them back into the business. This can be done by reinvesting profits into new products, expanding the business, or hiring new staff. The second way to build up retained earnings is to reduce expenses. This can be accomplished by cutting costs in areas such as marketing and/or overhead expenses. If you want your business to be prepared for anything, it is important to have a healthy retained earnings account. By reinvesting profits and reducing expenses, you can ensure that your company has the funds it needs to weather any storm. With a strong foundation of retained earnings, your business can thrive for years to come. Entrepreneurs should also Carefully Consider Retained Earnings if Buying an Existing Business When evaluating a company’s financial statement, it is important to look at the retained earnings line item. This number will tell you how much money a company has set aside to cover expenses during tough times or to reinvest in the business. If you are interested in investing in a company, it is important to make sure that its retained earnings account is healthy and growing. What else do you think new and existing business owners should know about retained earnings? Please share your own thoughts and experiences so others can better understand this important topic. Interested in learning more about business? Then just visit Waters Business Consulting Group.

If you run a successful business — and have for many years — it’s understandable that during such an uncertain time as there is now, you might consider just getting out. This is particularly true for individuals who’ve enjoyed a good amount of success but just don’t want to go through another cycle that again puts them emotionally through the wringer. However, because of all of that’s going on in the economy, with things largely down, is it best to sell now or wait until the economy recovers? The Downsides of Selling During a Recession That’s really the million-dollar question. Of course, a recession will naturally be a more tough environment in which to sell. There will be fewer buyers available as small business credit tightens and even larger organizations avoid potential risk. So, you’ll probably find it a bit challenging to find a suitable buyer. The Great Recession ended in 2009 and impacted the lives of many. Now as the economy appears to be headed into another downturn, it’s a good time to review how to take advantage of the recession instead of letting it take advantage of you. —Investopedia Then, there’s another fairly obvious factor — will your business bring the amount you expect? Put another way, can you sell it for the same amount or near the same amount you would be able to during normal economic times? Also, how do you effectively market your business in order to attract the right type of buyer? (This is where an experienced business consultant/coach would come in very handy.) The Advantages of Selling During a Recession Conversely, there are some distinct advantages to selling during an economic downturn. Here are some benefits you should know about: You might be able to leverage a slight discount. Okay, so that’s probably not what you want to hear, but this doesn’t mean giving your company away for an undervalued, low-ball price. What it does mean is being able to attract qualified buyers with the promise of a fair deal. By taking this approach, you may be able to sell it faster and move on to something else, or perhaps retire, in a shorter period of time. You can separate out time-wasters from serious buyers. This is something just about any business that’s for sale encounters. People who talk a good game but never really follow through and actually take action. On the flip side, serious buyers will understand the overall economic circumstances. Therefore, they’ll be more sincere and eager to get the deal done. In other words, they’ll likely have their ducks in a row and be ready to proceed because they’re serious. Remember that you’re in control. Very few business owners who decide to sell are completely comfortable with their decision. The majority will second-guess themselves over and over again, even after they go through with a transaction. The bottom line is, if you are able to get a fair price, it’s probably not worth risking waiting any longer, because the economic environment could worsen and that will most definitely hurt your chances of selling. What other advice do you have? Please take a moment to share your thoughts and experiences by commenting and giving others valuable feedback! Interested in learning more about business? Then just visit Waters Business Consulting Group.