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How to Manage Your Business's Finances

β€” Alexandra Ardelean

A Canadian business owner seeks guidance on when he can begin to enjoy the fruits of his entrepreneurial labor.

Blake is a business owner in Canada. He has been managing a company that provides plumbing, heating, electrical, and cooling services for almost two years. The company generates an annual revenue of 1.3 million and has a small team of five employees, including Blake and a partner, with their wives also on the payroll for tax purposes.

The company's current net profit is $250. They reinvest all profits back into the business, including buying vehicles with cash and leasing a building. Blake is concerned about when he can start reaping the benefits of the business.

He says, "I'm not sure if I should be taking money out of the business or if I should be reinvesting it all back in."

The company faces cash flow issues due to late payments from builders. Blake worries about supporting his employees and is reluctant to withdraw money from the business for personal reasons.

He says, "I feel like I'm responsible for my employees' families."

Let's see what Dave Ramsey has to say about this.

Dave here: Blake, you're doing great! You're running your business on cash and taking care of your employees' families. That's awesome!

But you need to start taking some profits home too. Here's how to do it:

First, you need to move your retained earnings out of that checking account. You're not following basic financial rules by keeping all that money in there.

You need to set aside a specific amount to cover your cash flow fluctuations, but the rest needs to be moved out and invested in something that will earn you a return.

Next, you need to implement job costing so you can track profitability on each project. This will help you see where you're making money and where you're losing it.

You also need to set up budgeting so you can plan for future expenses. There are software programs that can help you with both of these things.

I want you to set aside six months' worth of operational expenses as retained earnings. This will provide a buffer for your cash flow fluctuations and enable you to continue expanding your business.

Once you've done all this, you have my permission (not that you need it) to start taking some profits home. I suggest you take your wife on a trip with the first withdrawal. You've earned it!