Video: Capitalizing Your Business with Retained Earnings
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The third way of capitalizing your business and this is the optimum way, this is ideally the way that your business will operate in normal circumstances, and that is to plow back earnings into the business. You want your business to be generating enough cash to cover expenses and you want your business to generate enough cash to pay its’ owners as well. I mean, that’s the reason why the owners invested in this business. You also want your business to grow, and you want that growth to be funded by the earnings of that business. What you really ought to do is make a plan for a portion of your earnings to be plowed back into the business. That is the safest way to grow a business. You’re not incurring additional debts to creditors. You’re not bringing in additional investors. Every investor is going to have its’ own agenda for things that it wants to see in the business, and sometimes investors can actually bring in a really valuable insight to a business and sometimes it’s highly desirable to have that. But other times you don’t want more voices in the board room who are advocating for a certain position, so you don’t want to have to bring in additional people and the best way to do that is to plow back some retained earnings back into the business to grow it.
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