We’re right in the middle of Q4 for 2016—and we all know what that means. It’s the time of year when earning reports for businesses are determined, and for many companies, the discovery is made that the year has ended with a budget surplus.
Budget surpluses are a pleasant surprise, and happen for plenty of reasons. Outside of projections for expenses that may have been off, a budget surplus can also mean particularly good revenues, payed-off startup costs, a competitor going out of business, or operational changes and cutbacks.
So, where does that extra money usually go when a business earns a budget surplus?
If we’re talking branch level, a budget surplus usually means bonuses for the departments responsible for bringing the company in under budget for the year. And for others, a budget surplus could mean extra money to fund special projects or specific investments.
Knowing how to allocate a budget surplus can help business owners grow their company in thoughtful, creative, proactive ways. Here are a few ideas and specific areas where companies should consider investing their year-end budget surplus.
See Ya, Debt
The less debt you have, the more the net worth of your business and the less interest you’ll pay each year. A very wise thing companies should think about is applying budget surplus funds towards is clearing the debt that they’re paying the highest rates of interest on. There may not always be budget surpluses in your Q4, so it’s a good idea to take advantage of those extra funds and pay off some debt.
Make Yourself a Safety Net
Building a cash reserve is very smart. The extra funds will help a lot during slow sales periods, uneven periods of cash flow, a temporary emergency, or a long-term issue. Three months’ worth of operating capital is a good amount to set aside (depending on the size of your business). If it’s possible, save cash to keep your company operating for at least six months—particularly if your company has limited credit options.
Invest in Investing
Many businesses have benefited from investing their budget surplus into different avenues that have earned them money. If this is your choice, find a financial consultant who can find valid, low-risk investment options for you.
Do Something Smart for the Company
If the company’s year has been good to you, it’s a great idea to be good to the company. Consider investing in a product or service that benefits what you are all doing together.
A good example is something cutting-edge technology wise, such as an Enterprise Content Management (ECM) system. ECM systems are a fantastic way to increase productivity, so it’s like re-investing into your company.
An ECM system is basically a way to keep files and folders neatly organized on a private company server so that employees can easily access and share them. Your company’s content is kept safe and preserved, and your employees can not only find a file they need, but all the other content that relates to it. (Such as: if they’re looking up an invoice, they can also quickly and easily view the purchase order, packing slip, and the check that was used to pay the invoice.)
No company should be without organization like this, so if you have a little extra financial luck, this is a very wise investment to consider.
Share the Wealth
As mentioned before, lots of companies use their budget surplus as a bonus for whomever had a hand in helping earn them (or even just employees you want to keep around). This is a great idea because it’s a reward for hard work, but be sure to talk to your tax accountant about it first in order to see what it would do to your income tax rate, deductions, and quarterly payments.
Also check out using the budget surplus to increase company benefits as an alternative to a cash bonus. Offering a 401k lowers payroll taxes and will make everyone happy.
Spruce Up the Place
How’s the office looking these days? A little drab, perhaps? Some companies may choose to use their budget surplus to buy new office furniture, a new coat of paint, comfier desk chairs, a refreshed new break room, or even an entire new location. It depends on how much your surplus is, but this is one eye-pleasing way to spend it.
Strengthen What You’ve Got
With extra finances from a budget surplus, another great idea to think about is to beef up what’s already working. Invest into some worker training by hiring a specialist to come in. Build, record, and back up your inventory (like you’ve been meaning to do for years). Pay employees a little more who are doing a particularly good job for you. Hire a consultant who’s an expert in your field. Anything that you think may give a little more backbone to your business works.
Increase Your Marketing
Have you been dreaming about a billboard for your company? Better online ads? T-shirts with your logo? When a budget surplus happens, it’s a great opportunity to use it on an old classic: marketing. These days, that can mean almost anything, from print to digital to wearable. Good marketing works, so it’s a good idea to grab a little extra of it to boost your visibility.
Remember, when it comes to deciding how to spend (or keep) extra finances, it’s best to consider every option, get a professional’s opinion, get feedback, understand the impact it will make on your company’s taxes, and be completely confident when it comes time to pull the trigger (or when it comes time to decide to simply save it for a rainy day). Do your research, crunch the numbers, and listen to good advice. Take the appropriate amount of time you need to decide, and if you’re part of a group of partners, make sure everyone is in agreement on the decision.