There can be no better feeling than seeing your company make its first profit and show signs of growth. Businesses rarely make profits in their first year. In fact, it takes 18 to 24 months to get it off the ground. Eventually, you’ll reach a stage where your revenue will be more than what you need to cover your expenses.
When that happens, you’ll ask yourself, where can I spend the rest? You can reinvest the money into your business to increase staff retention, buy new machinery, such as a printing press, and watch it reach new heights, or invest it elsewhere to grow your money. Let us show you!
Saving vs. Investing
While investing can be a risk, saving money can be a loss. In that case, what should you do? Let’s analyze these situations a little more in-depth.
People and businesses set aside money for emergencies, unexpected expenses, or future purchases. Saving provides liquidity for short-term goals and transactions and acts as a safety net for unforeseen events, and FDIC (Federal Deposit Insurance Corporation) protects the savings held at banks. Although using a certificate of deposit (CD) or a business savings account can earn interest over time, the interest rates are usually meager.
Savings are a crucial part of your financial plan, but they can cause you to lose purchasing power over time because of inflation. You also have to forego the opportunity cost of riskier but higher-yielding assets.
If you want to save your money in a savings account, look at the annual percentage yield. A higher APY is better since you’ll earn more. You should ensure there aren’t any hidden fees such as withdrawal fees, paper statement fees, account inactivity fees, monthly maintenance fees, etc., and finally, look at the cash bonus or incentives offered.
Investing is how individuals and businesses grow their money over time by putting it in financial instruments such as mutual funds, stocks, and bonds. Despite the risks, you can earn higher returns over time. It’s an ideal way to reach long-term financial goals, such as opening a new warehouse or purchasing heavy machinery. Still, because of its risks, you should choose investments that align with your tolerance, risks, goals, and time horizons.
You must reinvest in your business, such as recruitment, employer training, repaying existing debt, office space and equipment, and marketing.
As we have already established, investing comes with risks. There is no guarantee you will make a profit or even get the amount you invested, which is why diversification can help; you invest across several holdings.
Investing requires a long-term perspective, discipline, and commitment, which can be a problem in the face of market volatility and the desire to follow others attempting to make a quick profit. Emotional biases like greed or fear can lead to irrational or impulsive decisions.
By definition, investing entails risks of losing money, while saving comes with fewer risks, making investing riskier than saving. While opinions vary, many experts suggest saving enough to cover 3-6 months of your expenses to stay safe while the rest can be invested in your business or elsewhere.
Most startups reinvest their initial profits in their company; yours should be no exception. Here is where you can spend.
As a business owner, you can reinvest your profits for business Improvement, such as infrastructure, streamlining business processes and equipment, and improving customer experience to increase your profit in the long run.
For example, if your customers complain about product quality manufactured overseas, you can switch to a higher-cost producer. You can also purchase new equipment to improve quality and speed. Or you can enlist new talent by outsourcing tasks such as payrolls, translation services, editorial services, or content creation for your blog if you don’t have a qualified in-house team.
Your employees are the core of your business; they invest their time, energy, and talent to make your businesses succeed and grow. They can be expensive to replace, and investing in your company, such as through training, continuous education, and workshops, can retain and keep them motivated. It will help you build a solid reputation in the market, and they can even create a better brand reputation by providing better customer service. You can also offer discounts or benefits packages such as paid leave to reduce turnover rates.
Consider creating project financials to see how your business fares out if you hire new employees. If it leads to profit, you should attract and engage top talents such as marketing specialists or editors to ensure the quality and readability of published content.
Conventional marketing platforms are costly, but digital marketing, when done right, can substantially increase your company’s profit and capture a sizable portion of market shares. Instead of focusing on Facebook and Google ads or email marketing, you can tap into influencer marketing, SEO (search engine optimization) strategies, holding focus groups, and compensating your customers for writing reviews and testimonials to attract new customers. You can track your marketing strategy success by looking at metrics such as ROI (return on investment) or website bounce rates.
Doubling your money is a prospect only a few would turn down, but it can be a risky endeavor. A carefully balanced investment portfolio is an ideal first step to doubling your money, provided you’re patient. Here are a few ways to take your company’s profit and double it.
Cryptocurrencies, such as Bitcoin, are technologies supported by blockchains that keep track of who owns what and maintain a tamper-resistant transaction record. This prevents people from making copies of their digital holdings and spending it more than once. However, tangible securities or real assets do not back it.
Bitcoin is one of the most well-known, oldest, and largest cryptocurrencies. It is decentralized, not bound or limited by political meddling or government intervention. And it is a deflationary currency whose value tends to rise over time due to its supply cap and scarcity.
Crypto offers higher anonymity and financial privacy, as you can transact without disclosing personal information. You can use BTC to USD calculators to measure its exchange rate in real time. Many individuals invest in BTC for its investment value rather than using it as a medium of exchange. Still, it is volatile; its value can fluctuate, and the SIPC (Securities Investor Protection Corporation) or FDIC does not insure it.
One of the traditional ways of investing is through stocks and bonds. With stocks, you own a small portion of a company. It represents equity or partial ownership in a company. In contrast, with bonds, you loan the government or company money, and no shares to buy or equity are involved.
Stocks grow in resale value; the value of your shares will grow like the company’s value or vice versa, making them risky despite higher opportunities for long-term returns. On the other hand, bonds pay you fixed interest over time.
Bonds are more stable but are risky because if the company goes bankrupt during the bond period, you will stop receiving interest payments and may not get your entire principal either. Owning a mix of both will diversify your portfolio.
An index fund is an ETF (exchange-traded fund) or mutual fund. It is a portfolio of stocks or bonds that mimics the performance and composition of a financial market index. They have lower management costs, lower risks, and greater diversification than individual stocks.
Real estate is a popular investment vehicle. You can invest in rental properties and become a landlord, but the responsibility of taxes, insurance, paying back mortgages, and maintaining the property will fall on you.
Another option is REITs (real estate investment trusts), which are bought and sold on major exchanges. Trusts or corporations use investors’ money to purchase, sell, or operate income-producing properties. They provide regular income.
If you want to own rental real estate without running it, you can opt for real estate investment Groups (REIGs), like mutual funds. A company buys or builds apartments, condos, etc., allowing investors to purchase units and join the group.
Wrapping It up
When your company makes a profit, whether a cafe or a publishing house, the first step is reinvesting it into your company to watch it grow. You can keep savings for emergency funds or spend your money on other investments to make a profit.
However, it comes with risks, so diversification is a must to absorb the shock of any financial disruptions. Understand the different factors that impact financial markets, the risks attached, the yield you can earn, the time frame you have, and the risks you’re willing to take and compare and contrast to ensure you’re making the best financial decision possible.