How to Invest Your Business Profits Wisely
Watching your profits grow is one of the most exciting parts of being an entrepreneur. After putting in the work, you get to reap the rewards. As the business continues to grow, one of the decisions you have to make is choosing how to spend your profits in order to generate healthy returns. Instead of letting it stockpile in a low-yield savings account, here are three important strategies for investing your business profits wisely.
1. Invest in the business
The most obvious place to start is the business itself. There will always be ways to improve on the business and it’s essential to identify those to come up with a successful growth strategy. For example, one way to help your business earn more money is to amp up your marketing efforts. Paying for advertising services and digital marketing campaigns is worth the investment if it means helping you sell more products and services, or increasing your market reach.
You should also invest in the business’s infrastructure to improve operational efficiency. Moving to a bigger office or upgrading equipment are areas you can look into. This step also includes investing in the right technology. Studies show that the right technological investment and adoption boosts a company’s financial performance given how data-driven our economy has become. If it fits the business, see how you can use innovative tech like data analytics and cloud computing. Even simpler technology such as communication software can make a huge difference to your operations and, in turn, the bottom-line.
2. Invest in people
Making use of all that technology will not be possible without properly training your employees. Investing in your staff is a crucial component of taking your business further. So much so that entrepreneurs are increasing their budgets for training in spite of having low confidence in the economy. Aside from upskilling them, investing in your people also includes implementing changes that prioritize their wellbeing. For example, you can offer perks like wellness programs, allow workplace flexibility, and implement mental health leaves. These small initiatives don’t just have a direct impact on their overall health and wellbeing — they also demonstrate an empathetic leadership, one that they would be very motivated to work hard for.
Of course, you should never forget to invest in yourself as the owner of the business. A portion of the company’s excess profits can be used to pay for mentorship or coaching services to help you grow and succeed as an entrepreneur. This is not just for small business owners or new entrepreneurs. Even experienced leaders can unlock a new skill or potential with the right coach.
3. Invest in a portfolio
Once you’ve allocated funds to improve the business and the staff, consider using your business account to invest in securities. First, you need to open a brokerage account to start investing in various financial products, including stocks, ETFs, and bonds. You can use this account for long-term investment with the buy-and-hold strategy, which is ideal for business owners who can’t trade on a day-to-day basis.
Using business profits to invest can be overwhelming, even a little scary at first. However, it’s common practice for big companies to start an investment portfolio and it’s advisable even for SMEs for different reasons. For one, it’s not ideal to store all your earnings in one account in case a bank goes bankrupt. Keeping your funds in an investment portfolio is a better alternative to letting it accumulate in a bank account where makes very little growth. It also provides the business with an additional income stream, which can come in handy during lean business seasons.
Choosing how to invest and reinvest business profits is an important decision for an entrepreneur. Ultimately, the choice depends on the specific goals of the company but choosing to invest in the business, the people, and in a diversified portfolio are not bad places to start.