Your Business- Reinvesting Or Cashing Out-

							Your Business: Reinvesting Or Cashing Out?
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Your Business: Reinvesting Or Cashing Out?

Business is struggling during these hard financial times. Entrepreneurs
and business owners face a hard dilemma: reinvest in the business or cash
out? Here is how to determine the better option. First, a little story
about an American entrepreneur to illustrate.

Spencer was regarded and treated by his wealthy family as a black sheep,
a playboy, who would not amount to anything. This thinking was even
compounded when Spencer chose to settle in the West than in the East
coast where his wealthy and politically affiliated family resided.
Spencer came to Colorado Springs in 1891 fresh out of Harvard and started
to strike on his own. He wasn?t there for long when his brother, Boies, a
Philadelphia politician, received a request from him to send $1500 to go
into a mining deal. Boies was exasperated with his brother and, instead,
sent him $150 for train fare back to home.

Many years later, Spencer returned to Philadelphia and paid Boies a
visit. When the brothers met, Spencer gave Boies gold coins amounting to
$75,000. Boies was surprised and told Spencer that he did not go into the
mining deal and just sent him $150 for train fare. Spencer replied, ?That
is why I?m giving you only $75,000. If you wired me the amount I was
asking you, I would be handing you three quarters of a million now.?

If some enterprising people took out an instant payday loan to start a
home based or an online business, it really means that they are serious
to earn extra income through the venture and not just from their regular
salaries. But when should they start thinking of cashing out from the
business? Do they ask for dividends immediately after the first year of
the company? Or do they delay personal gratification until the business
is stable by reinvesting the profits back? If the entrepreneurs and
business owners who would often get cash from the business for personal
needs (paying credit cards, mortgages, and such) instead of applying for
payday loans, this sheds a negative light on the business or company.
This kind of scenario would not only limit the growth of the company or
business but likely increase the risk of its going bankrupt.

Companies that are not yet stable in generating continuous cash flows may
indeed face a greater risk of bankruptcy. People should determine if they
are financing their personal expenses from the profits of the business or
from the capital itself. When this happens, the business would go down.
It is important then to separate the finances of the company from
personal finances. To keep things separate, business owners can take cash
from the company by paying themselves a salary.

On the other hand, when these entrepreneurs reinvest their profits in the
business, they should keep in mind that they are investing in the future
growth of the company. Businesses with higher cash reserves have more
options for growth, such as expansion, acquisition of equipment, or even
buying out competitors. Reinvesting business profits requires the
entrepreneur to exercise a certain level of personal discipline.