You've made it! Your business is profitable, and the euphoria of success is undeniably sweet. But as the confetti settles and the celebration wanes, the looming question becomes: "What do we do now?" Here's a structured approach, inspired by the bucket analogy, to help you navigate the post-profitability waters.

The Bucket Approach

Think of your financial responsibilities as a series of buckets. Only when the first is filled can you proceed to the next, ensuring methodical and strategic financial management.

1. The Taxes Bucket:

   • Paying taxes isn't just a duty; it's a symbol of your success. In the United States, being taxed means you've been profitable.

   • Avoid deferring taxes to a future date or, worse, evading them. Instead, set aside funds throughout the year to cover your tax obligations. This prevents last-minute scrambles and ensures you're compliant on a quarterly basis. A year-end reconciliation might still be required, but the bulk of the job is done.

     
     

2. The Line of Credit Bucket:

   • Once taxes are sorted, turn your focus to clearing any outstanding lines of credit. Aim to reduce their balance to zero.

   • While it's understood that businesses might draw on their credit line during challenging times, it's prudent to pay off any outstanding amounts when in a position to do so.

     
     

3. The Capital Target Bucket:

   • A well-capitalized business isn't just about clearing debt. It's about ensuring you have reserves for emergencies.

   • A general rule is to maintain a reserve equivalent to two months of operating expenses and direct labor. This "emergency fund" is your safety net.

   • You might have other objectives beyond this primary capital target, especially if you're contemplating growth. This could mean opening a new branch, hiring more staff, or extending your service offerings. Determine the capital required for these plans and set aside funds accordingly.

     
     

4. The Distributions Bucket:

   • Most businesses prioritize distributions, but this approach advises the opposite. Only once the previous buckets are addressed should distributions be considered.

   • This strategy might seem counterintuitive, but it positions businesses for long-term stability and success.

     
     

5. The Reinvestment Option (Bonus):

   • Even after handling the above buckets, consider reinvesting surplus funds back into the business.

   • Any reinvestment should have a clear objective and an expected return on investment. It's not merely about pouring money back but ensuring it's channeled towards lucrative endeavors.

In summary, hitting profitability is a commendable milestone. However, it's not the end of the journey but a platform from which to launch into a future of sustained success. Adopting a structured approach like the bucket system ensures that your hard-earned profits are managed wisely, paving the way for continued growth and prosperity.