How and Where to Reinvest Your Profits

There’s no better feeling than having your hard work paying off. As a small business owner, seeing your first profits roll in is reassurance that you’re doing something right.

Deciding to reinvest your profits into your business is a critical choice that can significantly impact your growth. Whether investing in new equipment, marketing, hiring, or expanding your offerings, where and how you reinvest capital can make all the difference.

Companies that reinvest their profits have many options to consider, so it’s easy to feel overwhelmed when deciding where to put your hard-earned money. This article will help you evaluate how much cash you should reinvest and the reinvestment opportunities that can help you take your business to the next level.

How Much Money Should You Reinvest in Your Business?

The amount of profits that a company reinvests is, ultimately, your decision. There’s no “one size fits all” number or percentage that’s suitable for everyone. However, reinvesting 100% of your profits may not be wise. When calculating how much you want to reinvest, here are some factors to consider:

• Your debts and regular expenses
• How much you typically pay in taxes
• How much profit you’re earning regularly
• How much you rely on business profits for your personal expenses

As always, when in doubt, don’t hesitate to seek financial advice from a professional to understand if there is any reinvestment risk associated with your investment. An expert advisor can help you determine if the investment is a good idea and, if so, how much money you should invest.

Where to Reinvest Your Profits

If you’ve decided that reinvesting profits into your business is the right choice, the next question is: Where should I focus the reinvestments? There are many ways to reinvest capital, and the right option will generally depend on the type of your business and how much you want to put back into it.

Hardware and equipment.

Companies that reinvest their profits into equipment know the importance of having the right tools to get the job done. For a restaurateur, that could mean new cookware. For a graphic designer, that might be a new top-of-the-line computer. For contractors, it might mean high-quality power tools and heavy machinery.

Whatever the tools of your trade might be, when you reinvest capital into updating or replacing those tools, it can be a great way to improve your workflow. It’s important, however, to carefully weigh your options. For example, consider whether big-ticket items are worth buying outright or if leasing or financing is a better strategy.

Software and automation.

Sometimes, there just aren’t enough hours in the day for everything you have to do. Take a close look at how your business is running, and try to identify any pain points that new software could improve those points.

Profits could be reinvested into software enhancements, including bookkeeping applications, newsletter automation, or customer management database systems. If you reinvest capital into the right POS (point-of-sale) or billing systems, it can help you manage automatic payments and streamline invoicing.

Employee culture and development.

Small business owners with employees generally know how important it is to ensure a positive work experience for their employees. You don’t want to lose good employees because your business is unwilling to help them grow their skills or increase your workforce.

Some of the profits that a company reinvests could go toward hiring new employees to help with increasing demand. For your seasoned employees, consider their skills. Could they be taking on more responsibilities? If so, it might be the time to create new roles.

You also might consider expanding your benefits package. Check out our guide to small business health insurance.

Advertising.

For many small business owners, marketing can feel like uncharted territory. Knowing how to advertise your goods and services is a different ball game, which requires a little know-how and likely some financial investment.

When you reinvest capital into your marketing budget, there are a few different avenues to explore. There’s the traditional route, with newspaper ads and radio or TV commercials. You also can pay for sponsored social media posts and Google ads. You can hire a marketing professional to help guide you through options for increasing your visibility.

Materials and ingredients.

Small businesses focused on providing products and other tangible goods know the importance of quality control. If your products could be improved, reinvest capital in higher-quality materials.

Customers appreciate when they know you hold your products to their highest standards, and the quality of the goods you provide can set you apart from competitors.

Nest egg.

Putting profits into a savings account isn’t spending money, but it’s still a valid way to reinvest in your small business. By doing so, you’re helping to prepare your business for the long haul. Having a dedicated savings fund helps ensure that you have a safety net if the unexpected happens. This could include:

• Rent increases
• Fees and fines
• Taxes
• Rising prices on materials
• Cash-flow interruptions

Community involvement.

OK, this one isn’t technically reinvesting directly into your small business. However, investing time and money into getting involved in your community has the potential to pay off in dividends.

Keep an eye out for networking opportunities with other businesses in the area. Building these peer relationships helps you to share ideas, get referrals, and receive feedback and advice to help both parties grow. Community involvement also can increase your visibility.

When you reinvest capital into your community, it helps boost your public profile — which could mean increased business down the road.

We’re Here for You

Making wise decisions is an integral part of growing as a small business. If you’re still wondering if you should reinvest capital, we have another article that outlines the pros and cons of reinvesting.

Whether it’s advice and insight on investment strategies or information about insurance coverage, you’ll find helpful articles, tools, and tips when you visit our resource center.

Check out these articles for more ways to keep your small business thriving:

Why and How to Evaluate Your Small Business Performance

How a Competitor Analysis Can Help Boost Your Business

Small Business Risk Assessment: Learning Your Top Business Continuity Risks

Invest for Success

The profits that a company reinvests can open up a world of possibilities. Now that you know how to spot the best opportunities for reinvesting your profits, it’s time to put your plan in motion.

Whether it’s amping up your marketing plan, investing in new technology, or offering more benefits to your employees, your business will benefit from each of those investment decisions.