2015-08-07 00:00:00Money & FinanceEnglishReinvesting Your Profits: The expression ‘a penny saved is a penny earned’, implies that saving money instead of spending it unwisely...https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2017/05/shutterstock_112158569.jpghttps://quickbooks.intuit.com/in/resources/money-finance/a-guide-to-reinvesting-your-profits/A Guide to Reinvesting Your Profits

A Guide to Reinvesting Your Profits

2 min read

The expression ‘a penny saved is a penny earned’, implies that saving money instead of spending it unwisely actually amounts to making money.  An equally meaningful observation might be ‘a penny reinvested (wisely), yields even more pennies further down the road’. Whether it’s a penny or 1 lakh rupees, reinvesting your company’s profits properly allows you to maximise the value of the extra money that you make. However, before you can embark on reinvestment, there are a couple of checks that you need to make.

Manage your commitments

You can only begin reinvesting your profits once you’ve met your current financial commitments. This includes expenses like overheads, salaries, and marketing. Keeping your infrastructure and the tools of your trade up to date is non-negotiable. Say you use a particularly expensive type of software package that’s designed to help you deliver niche services in your sector. You will have to earmark a portion of your profits for the purposes of upgrading this software. After all, it’s what has allowed you to reap these benefits in the first place. You must ensure that you meet these basic requirements in the immediate and near future.

Gauge business growth

Do you foresee a positive growth trajectory for the profits that your business is turning? Will this imply a concurrent escalation in the intensity of your commitments? This is to say, will your current growth trajectory require you to expand your business operations proportionally? This might mean that your financial obligations could continue to eat into your profit margins, which you will be using to buffer your growth.

Prioritize your Re-investments

Reinvesting small amounts of money in aspects of your business that you know will give you assured returns, is one of many useful company strategies. It could be PR, marketing, or skills training and capacity building for yourself and your team. To reinvest such that you grow your business wisely, it helps to get inputs from well-established, more experienced entrepreneurs and professionals. Travel, for example, is a good reinvestment.

Ensuring that a portion of the money that you make goes towards meeting your clients face-to-face, is a sound practice. The quickest and most successful sells happen when the interaction is three-dimensional and in person. So, if you have to spend money making a trip to see a potential client or retaining an existing one, do it and continue to reinvest in it.

Get advice To reinvest wisely, find yourself an advisor or a mentor. Reaching out to experts who can guide you and help you determine the scope for reinvestment is also a useful strategy. This can be accomplished in a number of ways, from networking at seminars and meetings, to availing yourself of assistance from any major bank’s SME services division.

Keep at it Reinvestment isn’t a one-time deal. You have to be consistent in your efforts because the rewards are cumulative and accrue over time. Just think about the things you’re funding: skills training, better infrastructure, client outreach. None of these activities or entities is immune to the pressures of a market that grows ever more competitive and specialized. As long as change remains constant, so will reinvestment. It should therefore always figure in your long-term business plans, the key is to find the right time and the right amount to reinvest.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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