There can be no better feeling for an entrepreneur than the day your company turns a profit. While profits are not a problem, figuring out how to reinvest them back into your company might give you pause. Here, entrepreneurs weigh in on how they repurpose their profits for the best results.
Matthew Ross is co-owner and COO of RizKnows and Slumber Yard, product review sites for a variety of areas from mattresses to sports equipment. He believes in diversifying profits across three key areas: business infrastructure and marketing, employees, and dividends paid back to himself and his co-owner.
“We don’t want to put all of our eggs in one basket. If you’re investing too much into one area, the other buckets are left out in the cold,” Ross says. And since a lot can change in a year, Ross and his co-owner assess how to divvy up funds on a quarterly basis.
It’s important to get the word out about your business, but traditional paper forms of marketing, such as print ads, flyers and brochures may not cut it anymore in this digital age. Safwan Khan, founder of Startupily, a platform for entrepreneurs seeking content to start and grow their business, has found that traditional marketing strategies didn’t bring them any significant business, so he stopped investing in them. Flyers and brochures tend to get thrown away, he says.
“When I noticed this trend, I decided to stop wasting money on traditional marketing and allocate all the funds to digital marketing--Facebook and Google ads,” Khan says.
These sorts of digital campaigns enable them to target their ideal customer and analyze the results through easy to access analytics.
Ross has also found that the need to pay for marketing varies from quarter to quarter and should be reassessed frequently rather than to just pay on an ongoing basis without strategy.
REWARD AND TRAIN EMPLOYEES
If you’re big enough to hire employees, then you know people are the backbone of your enterprise and an important place to direct your profits. Nate Masterson, CEO of Maple Holistics, a cruelty-free personal care products company, suggests investing profits in professional developments initiatives that will improve the goods and services available to the workplace.
“The more employees feel trusted and appreciated, the more they will commit themselves to your company. At the end of the day, it's a win-win for all parties involved,” Masterson says.
Ross also encourages business owners to pay themselves back in the form of dividends earlier in a business than they may think is right because you never know what the future of your business will be.
“My business partner and I heard horror stories about startups that reinvest 100% of the profits for five or ten years back into the business. And then all of a sudden, something goes wrong and they go bankrupt.”
Ross says they usually take dividends once a quarter when possible, and reinvest other profits into rewarding and hiring employees, and digital marketing campaigns as needed. This coming year they will also be adding on two new hires, since their business grew 200% since last year.
Before you start doling out all that extra revenue, businesses need to make sure they’re setting aside enough money to pay for taxes or paying enough estimated quarterly taxes to federal and state governments. Nobody wants to get stuck with a surprise, hefty tax bill.
For Ross, massive growth in the last year means that they will be putting their Quarter One dividend to taxes instead.
Of course, there are numerous other areas that need funds, determined by the size and scope of a company. Ross recommends setting funding priority areas on a quarterly basis and reviewing and reassessing these areas each time with an honest eye to what’s really bringing results.
“We like to do it in spurts to keep the momentum going,” Ross says.