Reinvesting your profits: Where to start?

You’ve worked hard and it’s finally paying off. You’ve launched and established a great business and now you’re beginning to see a profit from it – but what now? What’s the plan for the profit you have generated?

You could go on a reckless spending spree, of course, but that’s not the prudent thing to do.

If you’ve reached a position in your business where you are making more money than over and above operational costs, employee payroll and fixed overheads, one of the best things for you to do is to reinvest your profits back into the business for more growth.

Remember, as a business owner you should always find ways to increase the value of your company. Look to invest when profits allows – without growth you’ll stagnate or go out of business completely. The time to put money into your business is when you’re in a position of financial strength.

How much should you re-invest? That’s an important question. The author of this Entrepreneur article puts that amount at half of what you earn, insisting that this strategy helped to boost faster growth of his company.

What should you invest in? Again, an important question. If you have profits to push back into the business, consider these key areas:

Paying off debt

Of course, if you owe any money – to investors, suppliers and so on – then allocate some of your profit to clearing off any debt. These costs will be part of your running costs anyway, but there might be longer-term arrangements that you can settle quicker if you have the funds to do so. Being free of dependents is a great thing for a business – if you pay a three-year loan back in two years, that’s a fantastic achievement.

Invest in people
If your business is growing fast, you might be out-stretching your capacity. This is not sustainable in the medium term. Now you’re in a decent position, financially, it’s the perfect time to analyse where you might need support. Can you afford to recruit another employee, two or three? That requires investment but if that investment leads to increased performance, productivity and again, profit, it’s worth it. Don’t wait until you’re struggling to look for support in the shape of recruitment – do it while the bottom line of the business is in good health.

Invest in technology

Does your business have everything it needs, in terms of hardware and software, to thrive and reach the next level? If there are areas that need improvement, now is the time to invest. That might be in customer retention tools, an internal HR system to track employee happiness and performance, a more sophisticated payment process – a recent article on Wamda suggested cashless payment channels could double business growth, for example. It might mean an upgrade to the hardware employees use, or a more robust IT security package. You’ll know what your business is missing. Fill the gaps.

Invest in advertising and marketing

You could also think about expanding your marketing and advertising, and increasing your budget now you have some profit to work with. You can probably be a little more bold and ambitious with your marketing, expanding your presence on social media platforms, perhaps trialling some paid-for marketing on Facebook, for example. You could hire a consultant, on a fixed-term project basis, to evaluate the design and performance of your website, potentially giving it a refresh if required.

If you’re unsure of the best way to reinvest, seek advice. All business owners could benefit from working with a mentor to help guide them, or even just being well read – tapping into online forums, how-to guides, information from CRC articles and relevant industry news to draw inspiration from.

When your business is in profit, it can be tempting to hold onto that money and enjoy the satisfaction it brings. But in order to drive your business on to newer heights, it really is important to divert some of that profit into growing faster, stronger and more profitable.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.