If you own or operate a small business, you already know that making financial decisions is one of several crucial responsibilities. If your business plan is succeeding, you may have begun to accrue your first profits—and now, you’re not sure what to do with them.
The good news is that even the smallest businesses have several investment options for turning profits into continued future success. Deciding where to invest your small business profits does not need to be an agonizing choice.
Learn more about your options and then make careful considerations about your business’ current position. You can even address this question with the nuanced guidance of an experienced financial advisor.
What Is Meant by “Investment”
When thinking of the term investment in the context of a small business’ profits, most people assume that their options are limited to typical investment vehicles such as stocks and bonds. However, investment for a small business can mean a lot more.
Any profit that you funnel back into your business is an investment as well—one that invests in the future of your business and its continued success. You don’t have to limit yourself to index funds or interest-bearing savings accounts if your company could put that money to better use elsewhere.
Understanding Expense Creep
One important element of business investment to note is the concept of “creep.” As a small business owner, it is true that you should pay yourself from the business’ profits. However, avoid continuous increases to your own personal standard of living as your business profits increase over time.
Doing so is called lifestyle creep, and it can eat into your profits until you have nothing left to invest in your business. Pay yourself, but be sure that you are not paying out more than your own annual expenses.
Invest the rest. Similarly, spending on the business should be limited to what is most utilitarian or beneficial, or else you risk consuming your profits without long-term improvement to the business.
Your Business’ Infrastructure and Critical Tools
If you are looking for ideas on where to invest your small business profits, one of the first places to look is your business infrastructure. Your industry will determine your investment options to an extent, but if you can improve the speed of service, customer experience or other elements by purchasing better equipment, this may be an efficient use of capital. This will also provide an opportunity to serve more people in the future, increasing your profits once again.
Employee Training and Hiring
Another way to invest your profits back into your business is by considering your employees. Would more employees help your business succeed? Do you need to split one position into two so that both roles can be refined for increased productivity? Would you like to train current employees on new strategies that could benefit your service? Investing in employees has ripple effects across the entire enterprise.
Debt and General Cash Flow
Of course, you need not invest your profits into physical assets alone. If your business has debt, such as loans or credit card balances, it is important to pay these down as soon as possible. Balancing out paying down high interest debt and investing for growth is critical to your future so that your cash flow is sufficient to cover all of your needs. The right blend of risk and return for your business will depend on your unique financial circumstances.
Business Expansion and Marketing
You can turn your profits into even greater profits over time by expanding your business. That may mean opening a new location, branching out into the online realm or boosting your marketing efforts to reach new audiences.
Though the specifics of this investment strategy will differ depending on your business industry or company goals, do not forget that your profits have the potential to broaden your business and reach more people than ever before. With a bigger cloud of customers, your profits should continue to increase over time.
Trust The Experts To Help You Secure Your Business’ Financial Future
Whether you are just starting out as a small business or you want to make better decisions with your profits, you don’t have to navigate those concerns alone. The experts at Inflection Advisors would be happy to help you develop a strategy that benefits your business and sets you up for financial success. Reach out to learn more about the wide variety of services that we offer or to schedule an appointment.