If you’re like most makers I know, the last few months of the year can mean an increase in sales and a nice little cash cushion for your business. After all, the fourth quarter is when most retail based businesses traditionally turn a profit for the year.
But how you spend this extra cash can have a big impact on setting your business up for success in the new year.
It can be tempting to spend it all on a few extra holiday gifts or some treats for yourself, but before you know it, all that extra money can be gone, leaving you with a cash flow crunch during the next few months.
Instead, you should look at the money you’ve made over the last few months and create a strategy that maximizes its impact. If you’ve done a good job of record keeping in the past year, take a look at the first few months of the year. How did things look financially? Did you make a lot of money? Were things slow? Did you need the money from the previous holiday to help get you through?
Once you’ve taken a look at your previous year’s numbers, think about the months ahead. What moneymaking strategies do you have in place? What are the opportunities? What challenges will you face when it comes to making money?
Now that you have an idea of what’s in store for the next few months, you can devise a plan to make the most of the money you’ve just made. Here are some suggestions for what to do with all that fourth quarter profit:
Invest it back in your business. If you don’t need the profit your business has generated to cover personal bills, then investing it back in your business is a good way to spur growth for the next year. Think about your goals for the next year, and decide how spending on your business can help you achieve those goals. Maybe it’s purchasing advertising or spending more money on marketing. Maybe it’s taking a class or investing in a piece of equipment that would make your production more efficient. Whatever it is, focus on investments that can help your business grow in the new year.
Start saving for a big business goal. Maybe your business goals cost more than the money you made in the last quarter. I often hear makers talking about how they’d like to try exhibiting at a trade show, but they can’t afford it. If you’re business goals are bigger than your current profits, now is a good time to start saving for them. Open a savings account dedicated towards your business goals, and make it a priority to contribute a portion of your profits each month.
Fund your retirement. When you’re self employed, it’s up to you to take care of your retirement. Even if you still have income and a 401(k) from another job, investing in your retirement is one of the smartest things you can do with the extra income you’ve made over the last few months. If you don’t already have one, open an IRA or Roth IRA and start investing. If you already have one, use the extra income you’ve made to max out your contributions.
Save it for a rainy day. (Or a slow month.) Once you’ve funded your retirement plan and invested in your business, you may also want to put aside some money for a rainy day. Perhaps you’ll want to tuck the money into an emergency fund. Or set some money aside to pay yourself in months when you know the business will be a little slower. (I actually put my salary for January into a savings account and then set it auto-transfer into my checking account mid-month. This way, even if my business is a little slower next month, I know my personal bills are covered.)
Treat yourself (a little). I know I mentioned that you shouldn’t blow all the money you’ve made on little treats for yourself, but if you’ve managed to fund your retirement, invest in the business, and tuck money into savings, there’s no harm in treating yourself a little. Of course, the best treats are the ones that also help support the local economy, indie business, or your favorite social causes. This might be a good time to buy that new bag you’ve been coveting on Etsy, treat your partner to dinner at that great local restaurant you’ve been hearing about, or donate to your favorite charity.
And don’t forget to put some away for the tax man. And don’t forget that if you’ve made a profit this year, you’ll certainly owe money in taxes. You can use a service like outright.com to help determine your estimated quarterly taxes, then make sure you’ve put enough aside for the January 15th Q4 tax deadline.
I’d love to hear your thoughts in the comments. What are you planning on doing with your profits from the fourth quarter?