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.

Make no mistake about it, this is a very serious situation, no matter the dollar amount. Regardless of what was spent and for which items, this is theft. It is essentially stealing company funds for personal use. Now, if this sounds way too stringent, that’s because you’re probably not thinking of it in a more dire manner (you likely have a very good relationship with this employee). However, if you strip all that aside and look at it in pure dollars and cents, along with personality traits like integrity, this ought to infuriate you. So, let’s take a look at what to do if an employee is using a company credit card for personal use. Common Company Credit Card Risks Obviously, putting company credit cards in the hands of employees assumes a certain level of risk. While you may have strict policies regarding their proper use, it’s still ultimately up to the individual to obey those rules. Of course, every employee with a company credit card must be trusted to a large extent. And even though he or she may have acted responsibly in the past, that certainly doesn’t guarantee he or she will continue to do so in the future. Corporate credit cards are an important tool for many companies. Using the company credit card is often the ideal way to manage individual expenses like entertaining clients and business travel. However, company credit cards are also one of the most notorious leaks of company funds to bad employee decisions. From simple bad budgeting decisions to outright fraud and theft, these cards create undue opportunity and temptation for employees to misuse company funds. Fortunately, you can keep these incidents to a minimum… —Business.com Company credit cards are given out as a matter of convenience, but they do not come without a substantial risk factor. For instance, an employee could get into a personal pinch and use the card for emergency situations at home and you’ll only find out about it after the fact. Then, there are a few incidental mistakes. It’s entirely possible that your employee has a similar-looking card and accidentally makes a purchase with the wrong one, using the company credit card rather than their own. In the latter example, it’s entirely understandable, but if he or she does not take a proactive attempt to reimburse you or simply says nothing and hopes it will slide by, you have a problem on your hands. How to Deal with an Employee Who uses a Company Credit Card for Personal Expenses There are really two different scenarios that could play out. Someone who uses a company credit card for small, inexpensive items and someone who routinely misuses the card for personal expenses. Here are some suggestions for how to deal with an employee who uses a company card for personal use: Know exactly what the purchases were. Before you say anything to this employee, be sure to go through the monthly statement line by line to identify the purchases and their amounts. It would also be wise to go back through the last few months’ worth of previous statements to see if this is a pattern or not. You might just discover this has been going on for quite a long time. Know the laws in your state. This is where it gets serious. Even if the card was used for small purchases over a long period, that could add up to a substantial amount of money. Depending on the laws in your state, this could constitute a criminal act. At the very least, if it isn’t considered criminal, it is certainly a fireable offense. Obviously, if the charges were extraordinarily large, you’ll probably want to recoup that money and possibly prosecute the offender. Speak with HR and/or an attorney. Here again, the amount spent and the timeline will be extremely pertinent. If these are large expenses, they could mean something like grand larceny or another crime. Conversely, if the amount spent was small, you might just ask the employee to reimburse the company, what you need to know is if this is severe enough, and what legal options you have, including the possibility of withholding part of their pay. If you do discover an employee has been using a company credit card for their personal expenses, it is very important to take action, regardless of how much was spent or on what and/or over what period of time. If you don’t deal with the situation directly, the behavior will likely continue to happen to the detriment of the company. Interested in learning more about business? Then just visit Waters Business Consulting Group.