Whether a start-up or a seasoned business owner, there is no greater joy than seeing your financial records and notice how the profits are stacking up. It’s a signal that your hard work is turning your business into a successful venture.
But now that you are raking in profits, what’s next? Should you invest the money? Or perhaps, should you bank the profits for the cash balances to become a stark reminder of your success? If unsure, please read on to discover ways to utilize your business profits both in the short-term and long-term.
Table of Contents
1. Plough back into your business
Most businesses, especially start-ups, spend most of their profits reinvesting in the business to help it grow quicker. As such, yours shouldn’t be an exception. Use at least some of your earnings to streamline processes, update your technology, invest in marketing and other infrastructure. This way, you will improve efficiency, helping you enhance the customer experience.
Whether traditional marketing or digital marketing, you can never go wrong with marketing your products or services to your target customer base. It’s one way of growing your business from one height to another. However, any marketing isn’t marketing. Choose one with trackable return on investment (ROI). While creating awareness and driving traffic to your site are essential, a marketing strategy that guarantees sales conversion is what matters most.
3. Invest in your team
Building a robust workforce not only streamlines your processes but becomes evident in your bottom line. Reinvest your profits in your team’s initiatives, such as training and capacity building to upgrade capabilities.
Additionally, to support the current team, you can recruit new talent to inject new blood into your business. For example, if you have an upcoming software project and need skillsets not currently on your team then you may consider hiring a programmer from a freelance site. These resources can augment your team and help to get the project done faster and under budget.
You see, as your business scales out, operations become complex and demanding. As a result, your current team may become overstretched, creating exhaustion and inefficiencies.
To avert sucking out the much-needed energy from your current employees, add new personnel to the team. This introduces new life in the team to propel your business to new heights.
4. Invest in yourself
Because business owners are forced to wear several hats (even in areas they are short), when you start making profits, it’s time to hone skills in areas you are not strong. For instance, you might be a ground-breaking innovator but lack people management skills. Some online courses or seminars can become an invaluable resource to help you improve your team management skills.
5. Pay yourself
One of the top prospects of starting a business is to enter into self-employment. That said, making money out of it remains a prime factor. While you may endure donkey years of loss-making, it’s prudent you reward yourself with reasonable pay when you start recording profits.
Caution, however, is that don’t draw up too much profits beyond what you need. Instead, assume you are like one of the employees and ask yourself: what’s the equivalent market salary range for my position? The answer should help you derive a fair remuneration commensurate to your business size.
6. Invest your profits
You can never remove the option of investing if you want to diversify and grow your profits. The question is: where should you invest your earnings? Is it in cryptocurrency since the price of Bitcoin has exploded? Or, perhaps, in bonds and the stock market? Well, the answer to these questions isn’t a simple yes or no.
Investing is a delicate decision, which requires balancing. However, to reap the benefits of investing, you need to understand what you are doing. Additionally, your risk appetite and motive (speculative or long-term) determines the area you want to narrow in.
Ultimately, weigh in the investment options at hand. But remember, don’t try too risky investments as you might jeopardize your business. As a matter of fact, you should invest profits that are surplus to requirements at the moment. Otherwise, you might face an “ostrich effect,” where you don’t want to face the consequences of bad investment choices you’ve made.
7. Create a cash buffer
While reinvesting profits is commendable, make sure you maintain healthy cash flows. Set aside cash buffers to rescue you during rainy days. You see, a business cycle has its ups and downs. As such, when the harvest is plenty, put aside some buffer to provide cover on your odd days.
Watching your profits grow is a sight to behold, but choosing what to do with the margins can be a daunting task even to the most forward-thinking business owners. Fortunately, you can avert this challenge by investing in a robust business plan from the word go. This way, you will have a full picture of where you are heading. And when you start ramping up profits, investing becomes a breeze because you channel your earnings to sources resonating with your business goals.