The growth of your business depends on your ability to maximize each gain. That’s why knowing how to reinvest profits is a must-have skill. Profits are great, but without reinvestment, they’re partially wasted. As in so many aspects of business, the long-term view is most important. With smart reinvestments, you can make your regular gains exponential in their effects- and support the growth of your business for years to come.
After paying overhead, employee salaries, and yourself, hopefully you have something left over. It’s a good idea to build reinvestment funds into your business plan, and set a target for what you’d like to have on hand to accomplish your reinvestment goals. As for what those goals should be, I’ve found that smart reinvestment falls into three basic categories:
1. Investing in yourself. Take some of those profits, and add some tools to your own arsenal. By furthering your own education and skill set, you create a stronger business for the long haul. You also add value to your own product, especially if your product is informational or educational. When I worked in education, it was mandated that teachers go through a certain amount of professional development every year. That’s because in education, as in business, the professional that isn’t developing is stagnating.
For example, here at Business Republic I’m particularly glad to have reinvested in one particular skill of my own: public speaking. As my business-education ideas were bearing fruit, I realized that between podcasting, webinars, and speaking engagements, my whole future depended largely on mine and my partner’s communication skills. We signed up for public speaking training with Michael Port and Amy Mead. Now, I don’t only consider that training worth every penny, I consider it a real factor in the subsequent growth of our business.
The key was in identifying what training would provide a tangible, measurable impact on that growth. It’s not about simply taking classes in any old skill; it’s about finding skills you can apply directly to your business plan. Port and Mead’s course was a demonstrably good investment, measurable in everything from podcast-induced traffic to payments for speaking engagements. It’s clear that this reinvestment added customers and helped generate sales.
Whatever your business is, identify the skills that you’ll need most- be they web design, writing, coding, or rock climbing. Every cent you spend wisely will come back to you in revenue.
2. Investing in someone else. Of course, no growing business can move forward without a strong team. Ideally, your business grows to the point where you’ll needmore people to take on the workload. Those personnel investments may be the most important ones you make. The key is to hire for specific skill sets, particularly the ones that aren’t your personal forte.
That may mean hiring a social media specialist who understands the whims of Facebook better than you ever could. It may mean hiring a web designer to take your site beyond the standard templates available to amateurs. It may mean hiring writers and editors who can articulate your vision even better than you can. You can even hire remote virtual employees with no geographical limitations. Whatever they do, your new hires will free you up to focus on other, bigger things.
By investing in specified help, you can focus on new projects, new products, and new horizons for your business. Again, make sure that the contribution from this kind of reinvestment is demonstrable and measurable. If you hire wisely, the difference your new employees make should be reflected in revenue- even to the point where they pay for themselves.
3. Investing in the business itself. Finally, that extra revenue might best serve your business by a more direct investment in equipment, infrastructure, or even marketing. The advertising budget can be increased to widen the search for new customers. The website can be improved in its functionality or design. For a physical business, a remodeling or equipment purchase can breathe new life into your location. Even buying new computers or software could make a dramatic difference.
As always, deciding what to buy for your business comes down to maximizing the impact of the dollars you invest. Pay for that bold new storefront if it will make your business stand out on a crowded street, not because it looks cool. Get those new laptops because they improve productivity- only if they would improve productivity. Something as simple as your wardrobe could be a worthwhile investment; just be careful that it’s a business investment and not a personal one. It all comes down to the specific goals you want your reinvestments to help materialize.
Which reinvestment strategy you pursue will depend on the priorities of your business. Make a list of the most important improvements, the ones that you and your team predict would generate the most revenue. Invest in those first. Once your business is growing steadily, you can even rotate between the three types of reinvestment.
Sometimes, what pays off may surprise you, as well as what doesn’t. Track the progress of your reinvestments, and use that data to inform your next ones. Learn as you grow, and grow as you learn.