Starting a new business is a challenging but deeply rewarding endeavour. In the modern world, it has perhaps become easier to start a new business but much harder to keep that small business open for a sustained period. Whilst there will undoubtedly be hard times, the ultimate aim of small businesses is to get to the stage where they are balancing the books and striving for profits. Once you have gotten to the stage where you are making profits, congratulations are in order, as this is no mean feat.
When you get to this stage, however, it would be wise not to just sit and put your feet up. Instead, remaining proactive and striving to set your company up for future developments and growth would be wise. With differing business plans, economic implications, and ever-changing markets looming, it can be hard to know what to do next, but making educated and researched decisions about what to do with your business profits is most definitely the best way forward. Here are some ideas on what you can do with those profits.
Traditional Investments
Gaining more capital with your existing profits is one of the best uses of profits in small businesses. This normally comes in the form of investments. There are many different ways to invest, and these options seem to be expanding as the digital age matures.
Placing your money in external investment vehicles is a great way to use your profits to grow your wealth over time. There are two main ways to do this currently. You could opt for the traditional investment strategies. Consider opting to put your money in Stocks and Shares through a brokerage. This allows you to invest in the market and hopefully get shares back over time. This is a longer-term use of funds, but it can add security and longevity to your business plan. Alternatively, you could opt to invest in real estate for commercial or rental properties, which is sure to offer you a steady flow of income. Bonds are a slightly more risky traditional investment tactic, whether they are government or corporate, but equally, with risk comes reward, and these could pay off.
Crypto Investments
Aside from the traditional investment strategies, you could opt for reinvestment, there are options to enter the digital economy. Suited for forward-thinking entrepreneurs and business people, the rise and solidification of cryptocurrencies in the global economy offer a great chance for small business owners to reinvest their money in different ways than the traditional.
Crypto offers investors the chance for high returns, hedging against inflation, and a more diverse portfolio of investments, which many are keen to have. You’ll want to do your research for crypto as there is less known about it, but this is something a financial advisor could support with. Importantly, you will want to make sure when investing in crypto that you utilise the best non-custodial wallets. Whilst crypto exchanges offer you the chance to transact crypto, storing your private keys, the gateway to your cryptocurrencies, means you have full control of your funds and avoid any dangers of hacking, as these are very secure and keep your keys private on the blockchain.
Like any investment, crypto remains a volatile part of your business portfolio. Investing what you can’t afford to lose would be foolish. However, using crypto investments as part of a savvy business strategy could pay off dividends (quite literally).
Reinvestment into the business
Once you have made some profits, it could be a good idea to revisit your business plan and look at the best ways to reinvest in your own business again. This is the most common and often one of the wisest ways to use your business profits. Deciding whether a reinvestment and look at expansion of the current business is worth it and will pay off in the long term. Expansions can be costly, and knowing when to do this is crucial, but also knowing you have a solid plan that can be implemented to allow for further flourishing is imperative. Reinvesting in things like expanding your team, implementing technological upgrades, increasing your marketing campaign, and improving your product development are all great ways to expand and grow your business. This is sure to enhance productivity, streamline processes, and edge competitors in an increasingly saturated market. This could give crucial opportunities for expansion and diversification of the business, which may see the opening up of new markets and developments. However, bear in mind that you may not have the cash reserve to expand straight away and that this may be a process, but in the long run could pay off.
Build a Reserve
For safer but less ambitious and reserved business owners, growing a reserve for the business could be the best way to use their profits initially. Experts recommend that businesses have 3 to 6 months’ worth of reserves sitting on the side as a buffer. Having a cash reserve allows the business to continue operating during particularly difficult financial periods and could be crucial for dealing with unexpected challenges. You never know, there could be unexpected damage done to the business property from a force of nature or the global economy could crash into a recession. Either way, having funds saved up in a dedicated business savings account is a safe place to harbour extra funds whilst also earning interest on the current funds you have. Having capital saved also increases your business’s overall worth, which is attractive to prospective investors.
Pay off Debt and Tax
It is unlikely that any small business owner has managed to create their business and execute a strong business strategy without loans or borrowed money. These are often high-interest and can drain the funds of the business quickly. Looking to pay these off using the avalanche and snowball methods helps to eliminate debt and make sure you have a stronger financial footing for future growth.
As your profits grow, there are likely to be tax implications that become apparent. Earning more money leads you to pay more back in taxes. Accounting for this and knowing this is coming is important for any future business plans. To account for these increases, setting aside money in an account for the tax increase would be a wise thing to do. In addition to this, business owners might want to make sure they are well-versed in deductible expenses and optimize their tax plans. This means you are sure to be aligning with governmental regulations and avoid any nasty audits that may be on the horizon. Being aware of this is important and employing a financial advisor to help with this sort of accounting could be a really useful use of profits as well.
Rewards
Your business is unlikely to have made it anywhere without your own hard work and the dedication from the staff you have employed to make it such a success. Compensating yourself or employees for their efforts is important. It will boost morale, improve employee retention, create a more pleasant working environment, and offer sustainability for the longer term. Bonuses, profit-sharing initiatives, and pay rises are all great uses of profits and provide a morale boost that is sure to benefit the business.
To Conclude
Whilst it is worth celebrating returning a profit for any business, especially newer or smaller businesses, this is only the beginning. Resting on your laurels and not being proactive with those profits could lead to quick stagnation and problems quickly down the line. Using these profits wisely and in ways that can continue to promote the business is imperative to ensure long-lasting success.