4 Ways To Use Your Business Profits Wisely

While we’re accustomed to asking questions during adversity, we seldom ask questions while we’re successful, because we quickly fall under the illusion that we’ve arrived and figured out the right sequence of steps to follow, and now all we have to do is rinse and repeat. One major indicator of success in business is finally turning a profit.

If you’re finally at a point where you’re making more money than you’re spending, you need to do more than celebrating. You now also have to ask the tough question: what are you going to do next? This may be a bigger issue than you think. If you don’t make a decision, then, in the long run, you could end up losing your momentum, either reducing your business profits or even experiencing a loss.

So what should you do with your business profits? Let’s take a look at the implications of investing, reinvesting, saving, and spending.

1. Investing.

Invest your business profits in something that increases in value.

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Gold is another investment that continues to grow in value. That might be worth looking into as well, as there are many excellent new ways to own and to invest in gold.

2. Reinvesting your business profits

Smart reinvesting can be one of the fastest ways to grow your business. You may decide to either reinvest a little or all of your business profits back into your business. Decide on a percentage that makes sense based on a forecast of what the reinvestment will do for your business.

When reinvesting, you have to decide whether to reinvest in marketing and sales, or whether to reinvest in the business itself. These are not the same thing.

Reinvesting in marketing and sales is about figuring out how to improve your current methods. You may, for example, be able to build a better sales funnel or you may attract more customers by increasing your advertising budget.

Reinvesting in your business is about increasing the capacity of your business. Figure out what areas of your business could benefit the most from some increased resources, and how improving those areas would make you more profitable overall.

3. Savings

The idea of investing your business profits in savings is to stockpile cash for future use. As a business person, you might wonder if this is a good idea; after all, your hard-earned money is slowly being eaten up by inflation because the rate of inflation is higher than the interest rate a bank offers for your savings.

While this is a valid argument, the main reason to have a savings account is so that you can borrow money from yourself, should your business run into some unforeseen expenses. If you don’t have the money, you might have to borrow it at interest, or if you can’t get a loan fast enough, have to deal with a business loss. Suppose, for example, your website is hacked and you need to hire a top security specialist to clean up the mess, then you need to act quickly and you need to have the money available right away. Or, perhaps, you have an essential piece of equipment necessary to deliver a service for your customers, and if that breaks down, you will continue to lose business until you have it repaired or replaced.

Another reason to save is that the opposite may happen, too. Some unexpected opportunity shows up and you need the money to make a quick investment to seize that opportunity. If you don’t have the money, then someone else might be able to get it. For instance, a competitor may have a liquidation sale, and if you can get their products at a deeply discounted price, you’ll be able to sell it to your own customers for a handsome profit.

4. Spending your business profits

From an accounting point of view, spending is turning an asset (cash in hand) into a depreciating liability (a new cash register.) However, you can’t avoid spending money on the upkeep of your business. If you own a restaurant, you can’t afford to let your decor look run down.

So, what’s the best way to manage your business profits? Actually, all four ideas will help you improve your business — so consider ways to create a combination of these four options.

Posted by Dragan Sutevski

Dragan Sutevski is a founder and CEO of Sutevski Consulting, creating business excellence through innovative thinking. Get more from Dragan on Twitter. Contact Dragan