Have you ever looked at your balance sheet and wondered “what are retained earnings?” You are not alone.  Many business owners are confused when it comes to the concept of retained earnings.  Simply put, retained earnings are the profits that have accumulated over the years since the business started.  Retained earnings can be found on the balance sheet under the equity section.  

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When your business makes a profit, you can either distribute that profit to yourself or other owners as dividends, or you can keep the profit within the company and reinvest it by  purchasing new equipment, hiring more employees, buying more inventory or improving your products or services. In addition, banks often look at the retained earnings balance to assess the risk of loaning the business money.

To ensure the continued growth and success of your business and maintain a solid financial position, it is important to balance the needs of the owners and the company when deciding what to do with the earnings of the business.

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