How to Reinvest Your Business Profits

Mon, Feb 20, 2012


One glaring mistake that many new business owners make is failing to reinvest their profits in their company. Early successes could lead you to count your chickens before they hatch, thinking that earnings will be sustained or even increase. And that could spell trouble down the road, especially if you take it as carte blanche and treat your business as your personal piggy bank. This is a common and catastrophic error. If you fail to reinvest profits in your fledgling business, you may as well be denying your baby bird the worms that will help it to grow and mature. In short, you’re shooting yourself in the foot with this short-sighted mentality. So here are just a few ways that you can pump profits back into your business to ensure a long and successful professional venture.

  1. Advertising. It is especially important in the beginning to oil the advertising machine. In fact, many in the business community say that as much as half of your profits should go to advertising early on as a way to build on the momentum you start with and ensure a steady stream of new clients or customers (that you can turn into repeat business). Over time the amount you spend in this area may taper off (or alternately, increase as you expand). But if you’re not putting money into targeted advertising efforts in the beginning you should not be surprised when there is no money coming in. Spending money to make money is part of the deal.
  2. Equipment. You may have to start out with substandard or merely adequate equipment (computers, facilities, and so on) when you first launch your business. This is fairly par for the course since you don’t want to overspend in this area and regret it down the road. However, you should not hesitate to reinvest in upgraded equipment once you’re turning a profit as a way to ensure that you are capable of handling increased demand with modern efficiency.
  3. Education. As time goes by your industry is bound to undergo some changes. Or perhaps you’ve had to hire from the bottom of the barrel in a bid to keep overhead low. In either case, providing ongoing education for yourself and your employees is an excellent way to reinvest in your business as it means that you will improve the knowledge and skill level you have to offer as well as remaining at the forefront of innovation within your industry. This is added value that will help you to beat out the competition and remain relevant over time.
  4. Expansion. Once you’ve gotten to the point that the products or services you started with are selling like gangbusters, it’s time to think about branching out in order to take advantage of other business opportunities. Even mega-corporations like Google and Microsoft are constantly testing the waters with new products and services, so if you think you can skate by without expanding your business, think again.
  5. Pay down principle. While you can certainly find ways to increase your immediate cash flow (loans, invoice factoring, investment capital, and so on), most will cost you more in the long run. So one of the best things you can do to reinvest in your business is take any excess funds and put them towards your current debt. Paying down the principle on your loans will actually decrease the amount you pay over time (by reducing interest payments) and help you to get out of debt faster, which means you will soon have more profits to invest in your business (not to mention your own salary).
| More

Tags: , , , ,

Leave a Reply

You must be logged in to post a comment.