You did it. Your business is profitable, your bank account is thriving. The question is: what should you do with cash? Do you pay yourself a dividend and enjoy the return on your hard work and financial investment? Do you save the money? Or do you reinvest the profits to ensure your company’s continued growth and success?

When your business starts turning a profit, the cash can be used to:

1. Make you rich

2. Save for a rainy day

3. Scale your business 

These options aren’t mutually exclusive. Depending on how much cash you have available, you can - and should! - do all three.

Is your business ready to reinvest?

Before you can start reinvesting your profits, you must ensure you have enough money in your bank account to cover your current and future commitments for the next six months or so. Make sure you’re using actual profit numbers in your calculations, not projected profit 

If you can fulfil your upcoming financial obligations and still have money sitting in the bank, those remaining profits can then be taken as a dividend and/or used to scale your business.

How much should you reinvest?

The exact amount that you should reinvest will vary. Some experts suggest 10%, others recommend as much as 50%. Just like any decision in your business, the key is to be strategic and intentional. Throwing money at your business doesn’t guarantee success. And hoarding money can stagnate your growth.

Rather than reinvesting a set percentage or amount back into your company, you should decide how much to invest based on your growth plans and your business needs.

Where should you reinvest your profits?

Knowing where to reinvest your profits can be a challenge. Don’t be tempted to randomly throw money at an area of your business.  You’ll get significantly more bang from your buck if there’s some sensible and deliberate thinking behind your choices. Any cash you reinvest back into the company needs to have a clear purpose and strategy.

There are so many options, so let’s narrow them down:

1. Invest in optimisation

Arguably the most popular use of profits is to streamline the company’s operations. Whether that’s automating the business back-end, upgrading your systems or personalising the customer experience, making improvements directly benefits your business - from increasing profits to decreasing expenses. 

2. Invest in marketing

There are few areas in a business more important than marketing. Today, that mostly means digital marketing. You might want to hire a marketing agency. You might want to pay for Google or Facebook ads. You might want to upgrade your website. Or implement a great SEO strategy. 

Don’t throw paint at the wall to see what sticks. You need a clear plan. If you or your team don’t have the required expertise, invest in an expert to devise a targeted marketing strategy to expand your reach. 

3. Invest in your team

Investing in your workforce is crucial for long-term business growth. That means reinvesting profits into hiring and retaining your top talent. 

Hiring - What roles or skill sets are missing in your existing team to ensure you will hit your company goals and targets? This is your hiring roadmap.

Retention - A motivated and engaged team is a necessity as you scale your business. Invest in training and development for your employees, and consider introducing benefit packages as the business grows.

4. Invest in yourself

Scaling a company starts at the top. If you want to grow your business, you need to prioritise your own personal growth too. Reinvest some profits into developing your skills and knowledge. 

Or consider working with a business coach or strategist (like yours truly) to support you as you scale your business. Pay to attend in-person business events and conferences where you can expand your expertise with the added benefit of networking.

There are multiple uses of profits in business. Reinvestment is often the smartest option as it will help your company grow. It’s one thing to have built a profitable business, it’s another thing entirely to scale it - and to keep scaling it. Reinvesting your cash is an opportunity to create long-term, lasting growth for your company.

PSST…

If you’re looking for support to drive sustainable business growth and want to accelerate your company’s performance like my clients have this year (34.9% increase in revenue, 22% increase in profits), then get in touch to book a no-obligation call to discuss working together.