When your small business becomes profitable, you face a decision: should you invest the profits back into the business or take them out in the form of dividends? There’s no hard and fast answer — the right choice for you depends on your finances, the state of your company, and the opportunities. By exploring all of your options, you can get the biggest bang for your buck.
You’re Financially Stable
Your personal finances should play a role in your decision to reinvest. Are you currently taking a large enough salary to meet your needs? Would taking dividends help you out of a serious financial situation? If so, now might not be the best time to put the profits back into the business. After all, it’s not worth reinvesting if you can’t afford to pay your mortgage each month. Instead, wait until you can pay yourself enough to live comfortably; then, you can reinvest without the added stress.
You Want a Bigger Audience
Can your company benefit from more customers and a bigger audience? If you’re like most small businesses, the answer is almost always yes. Whether you’re launching a new product or you simply want to boost sales, marketing is a high-return way to reinvest profits. After all, as you reach more people, the pool of potential customers gets bigger.
Marketing is a fantastic option for small businesses because you can benefit from virtually any dollar amount. If you have $100 to reinvest, you can buy Facebook ads to drive traffic to your website; if you have $10,000, you can create a standout trade show booth setup or hire a writer to build a blog and improve your content marketing.
It’s Time to Expand
Many small business owners wear multiple hats — you might present to executives in the morning and take out the office trash in the afternoon. When low-value tasks are eating up your energy, it’s a good time to invest in extra help. Hire an office manager to help with ordering and filing, or use a virtual assistant to take care of email, travel plans, and research. It’s also a good idea to outsource tasks you hate. When you pay someone else to deal with them, you ease stress and free your mind for strategic planning and business development.
Your Team Has a Skills Gap
Job training is one way to invest in your company’s long-term success, especially if you can’t afford to hire a new employee. To find opportunities, look for your team’s skills gaps and fill them. If your graphic designer struggles when addiing new banners to your website, send them to a web development class. If you’re uncomfortable giving direction to employees, seek out a management training course. Local universities also offer a wealth of business classes to help fill any knowledge and skills gaps across your entire staff.
Your Company Is Ready to Grow
One of the best times to reinvest profits is when your business is ready to grow. Keep in mind that "ready" and "willing" are not the same thing — it’s almost never a good idea to invest in growth just because you want to. Before you expand, make sure your profits are steady, you have enough customers, and the market is on the rise. As your business grows, reinvestment can result in the bigger staff, better equipment, or larger facility that can help your company thrive.
When it comes to reinvesting profits, it’s a good idea to take your time. Smart, well-planned investments help you grow your business and boost long-term stability.