Founder, My Own Business
How should the retained earnings of a business be invested?
|One of the greatest challenges you will face as you grow your business is how to best use the earnings that are accumulated as you build earnings over a period of time. It's called retained earnings and it's the cash you accumulate after earnings, after all expenses and after taxes. Your challenge will be to use your retained earnings in a way that will be most productive to your growth. You'll have some options; in fact it will be an interesting number of options that you can compare and evaluate to see where you feel the best direction for you to apply those earnings. One direction would be for example to grow your business within the business that you're now in. It would mean that if you are running a store you would add a second store. So you would simply use the funds to expand your capability of earnings of what your presently doing. In some cases some business must use their retained earnings in order to keep pace in the industry that they are in. For example if a company is in a manufacturing business and their competitors put in new machinery that is more efficient retained earning rather than being used for growth will have to be used to put in new machinery simply to keep pace. That means that is kind of a warning flag for you. It's not a particularly good idea to be in a business where your retained earnings are going to be eaten up by simply staying alive. The better application would be to use those earnings in some way that will be productive.|