Successfully reinvesting your business profits
The aim of business is to make a profit but once you’re successful and regularly turning over a sum exceeding your outgoings and overheads, what should you do with it? There are several different options.
The first is to save it for the future. That can be done by keeping it within the company, in a company account, as contingency funds for unforeseen business expenses. Essentially this is a deferred reinvestment into your business.
Pass it on
You could also take it out of the business as a clear profit and, if you are a sole trader, either add it to your savings or simply spend it. After all, this is money that you’ve earned, so you have every right to it. If your business has shareholders or is a cooperative, you could distribute the profits according to your arrangements. You might also want to pass the profit on to your workers in the form of a wage increase or a bonus.
Put it back
The other option, which we will be looking at in this article, is to reinvest your profits. Again, there are two main ways to do this. You could either plow the money back into the business, or you could invest it elsewhere in the hope of making further profits.
Putting your profits, or a portion of your profits, back into the business is a sensible idea. The money can be used to buy new equipment or upgrade the essential tools you already use. You might want to move to bigger premises, employ more people, or use the money to expand in other ways. These are all good uses of your profits, but there is also something to be said for investing away from your own business, if only as a way of hedging your bets.
Put it to work
Big companies often have a dedicated investment department that uses a part of the company’s profits to speculate on the financial markets. Forex traders buy and sell different currencies to profit from the fluctuating exchange rates. This could be a good way of making your profits go further, especially if you do business internationally and already deal in different currencies.
Invest it elsewhere
You might also want to buy shares in a company that is doing well in a sector completely different from the one in which your business operates. In this way, you aren’t betting on your rivals, but are putting some of your money into a different sector to cover you against a downturn in your area of business.
For instance, a fruit and veg wholesaler might struggle through no fault of its own if there is a shortage of certain crops making it unable to supply the retail stores. But if they have part ownership of a local haulage firm that is doing well, income from that company will help to cover them until supplies pick up again.
Ultimately, a combination of all of these approaches might be the best way to go. By investing in both your own business and in other sectors you can ensure the best chance of survival.