When your business yields good profit, you’ll be right to be glad about it. That’s what you’re in it for. But refuse the spending spree bait that presents itself. There’s a tomorrow coming, as there are months and years of more business to be done; you’re going to need some of the money you’ve made to finance the greater strides you hope your venture will make.
Reinvesting – or ploughing back – is one way to set the stage for business growth. It’s also the most sustainable way. Large cash injections from banks and individual investors may give an enterprise a big expansion jolt, but if it’s not yielding the sort of returns they’re looking for, the flow of funds from them could cease. Besides, using money from the business itself to run it guarantees that it stays in your hands, and with it, your ability to run it as you choose. Equity investment from persons or institutions other than yourself will almost certainly come with the loss of some decision making autonomy on your part.
It’s not always clear what to do with surplus profits. There could be needs you already want to deal with, for which the new funds come in handy. But you have to be sure that you’re reinvesting in the right segments of the business. You don’t want to wind up sinking precious profits into unproductive things.
In order to get this right, you’ll have to take these steps:
- Review your business and compile a list of needs
- Record the performance of various aspects of your business: products, processes, personnel, etc. Use some sort of standard measure to quantify these, in order to aid comparism across board. For employees, it could be work done, and for products it could be sales figures.
- Compare and rank performances as quantified
- Determine the reasons for good, average or poor performances
- Decide what processes, inputs, personnel and products need to be adjusted, maintained, enhanced, cut, or done away with entirely.
- Assess and attach costs to these actions
- Apply plough back funds accordingly
Here are ways to reinvest your business’ profits and keep your enterprise on the path to sustainable growth.
Hire more people
If your business really needs more hands and you’ve gotten enough to manage it, you should put some of the profit into hiring (more) staff. Seek people who have the skills and qualifications to get the job done, and are trainable.
Train existing staff
Your employees will play a big role in raising profit margins for your business. Because they’re this important, you should consider putting profits into making your staff better at what they do.
Expand to new locations
Before doing this, make sure that there’s sufficient demand for the type of product you’re offering to sustain the new branch(es). It might also be good to look at how possible competitors are faring in the areas you plan to set up in, and decide whether you can match and outplay them for market share.
Another way to reinvest profits is to pay other persons or companies to do some of the less critical jobs for your business. This will give you and your in0house workers the opportunity to concentrate on the core aspects on the business.
Acquire new technology
Maybe there are machines or equipment, hardware or software that could make your work more efficient. Extra revenues could go into getting them in place for your business. These fixtures could be anything from new printers to HR and payroll software systems, installing data and communication systems, or upgrading existing ones. Know what the best new technologies being used in your industry are, and find out how they could work for you. Purchase and install the products that are most likely to work for your business.
Raise the quality of your product or service
What product features would you like to improve or add? They could be included as profits ploughed back. The time for a product re-brand or remake, partial or total, will come; it’s just a question of whether consumer tastes change quickly enough to necessitate such enhancements. Changes could also be made when general customer preferences seem stable, if you spot a chance to renew interest in your brand with a new look product package or an added service. It’s something that reinvested profits could help achieve.
Establish or expand online presence
Getting a dedicated website for your business costs money, as does upgrading an existing one. But your business will need one if it’s going to be more than a micro enterprise. If the business is growing organically and generating revenues that significantly surpass its costs, it might be a good idea to put some of that money back into the business by acquiring a suitable website.