Small business by the numbers – Retained earnings!

Posted: July 24, 2013 in Family Businesses, Up-and-running Business

The last couple of posts illustrated some metrics that small business owners should be acutely aware of. All of these metrics will help you understand how your business performs and help you make the right kind of decisions to turn your business around, restore it to profitability or improve profitability.

The retained earnings section of the balance sheet is the location where the fruits of your labour should be seen. Hopefully, this will increase year-over-year. A business that adds retained earnings to the balance sheet will improve the balance sheet, make the balance sheet more attractive to lenders and will improve the capitalization of the business.

It seems intuitive – but it isn’t.  If the business generates good retained earnings it allows the business to add more external capital to put to work – that will increase profits in the future and further increase retained earnings. Many small business owners don’t understand this.

There is another challenge that small businesses with good retained earnings face – how to monetize these retained earnings.

This will be dealt with in a subsequent post.


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