Retained earnings, sometimes referred to as “accumulated earnings” refers to the portion of net profit that is not paid out in dividends, but is retained within the company. These earnings are often used for projects or debt payments, purchasing new equipment or supplies, or research and development. Retained earnings fund your business’ growth and progression, so we’ve come up with seven clever ways to retain higher earnings.
Table Of Contents
1. Reduce Overhead Costs
Overhead costs such as storefront utilities and maintenance can put a serious strain on your company’s profits, and result in lower retained earnings.
If you can switch your business to a strictly online business, you’ll eliminate most of your overhead costs. You’ll still need to pay merchant fees, site maintenance and hosting, and even a web designer, but many of these are annual or one-time costs.
A storefront is a costly endeavor and one that doesn’t necessarily generate more customers. While having a storefront can invite traffic into your place of business, an effective online presence on social media and solid marketing strategies can make an online business even more profitable; without the overhead.
2. Cut Your Production Costs
The simplest way to cut production costs is to lay off employees who aren’t absolutely necessary to the process or outsource labor costs overseas. If you don’t want to trim your team, however, you can try a few other options.
Establishing a relationship with local suppliers can help lower the cost of your supplies, and therefore production. You can also look overseas for a better deal if you can’t find it locally, but there’s a good chance you may get a faulty product if you’re not careful of which company you order from.
You can also look for your supplies in bulk. This is efficient for production supplies, or even such things as office supplies for your administrative staff.
Don’t forget that simple expenses like toilet paper and printer ink can add up quickly, and are recurring. Buying bulk amounts of items you’ll use can help save you quite a bit of money.
3. Cut Benefits Costs
The best way to cut the cost of benefits such as health insurance is to shop around and compare prices. Chances are, somewhere out there is a more cost efficient insurance package for your employees, you just need to look at it.
The health insurance industry is extremely competitive, and you may find that companies will work with you to negotiate a plan that works for your budget, and saves the company money in the long run. Thus boosting your retained earnings.
4. Optimize Productivity and Time Management
Using project management software can boost the productivity of your employees by providing clear communication tools. Apps such as Basecamp provide a central hub for your employees to collaborate on projects and provide updates.
When your team is in sync, the project is more cost effective because it is streamlined. The cost per hour is offset by the synchronicity and efficiency of the team, maximizing the profits of the completed product.
Time management software allows you to manage every hour of your day. The old saying “time is money” is absolutely accurate. Managing your time is essential to making the most out of your day and boosting profits.
5. Go Paperless
Cloud storage and digital invoice services make the need for paper services obsolete. Important documents can be stored and shared on the cloud, and invoices can be generated and sent completely online.
Going paperless eliminates paper, ink, and printer costs, as well as reducing your company’s carbon footprint by reducing waste. Paper waste accounts for a large percentage of all municipal waste, so there’s an even greater advantage to saving yourself some money.
Retained earnings will increase once you discontinue using paper products, and you’ll find that your company is much better for it financially and ecologically.
6. Create Effective Marketing To Boost Sales
The best way to boost your retained earnings is to boost your sales numbers and to do this, you need to generate interest in your brand.
An effective marketing campaign appeals to your target audience, providing a solution to a problem with your product or service. This creates excitement about the product and grows your target audience with new clients.
Boosting sales doesn’t necessarily mean producing more, but selling more of what you produce. Inventory does you no good when it’s sitting on a shelf.
7. Maximize Your Space, Or Find A Smaller Space
Your production space is likely paid for by the square foot, so it’s important that you find ways to make the most out of it. If you have production space that is not occupied, or office space you don’t need, you might need to downgrade to a smaller space.
Moving to a smaller space just means that you’re cutting the cost of your building by producing in a smaller area. This can actually be very effective at cutting costs, as renting or buying a warehouse or office space is very expensive, especially in large metropolitan areas.
Quality Means Profit
Cutting costs will increase your retained earnings but remember not to sacrifice the quality of your product for higher earnings. You’re sure to lose at least some of your customer base if you suddenly begin selling a sub-par product or service. Find ways to balance cost and quality, and you’ll see an increase in profits and a decrease in production costs.