It may take a while before your SME turns a healthy profit but, when it does, you need to know how to make the most of your company’s money. Once you have calculated your profit, after salary payments, expenses and cost forecasts have been made, you will be left with a variety of options on what to do with your surplus funds.
The best businesses survive by making smart choices. This means making the right decisions that allow business to thrive.
A common pattern with most failed businesses is that they needlessly spent money on the wrong things. Profits should be used to invest in your business. This means that there should be a return on the money used.
This can come from a range of methods, ranging from hiring more staff, upgrading equipment or software, expanding skills through training, or even driving sales through increased advertising.
These are all great ways to reinvest in your small business. We’ll take a look at the best methods in more detail below.
Identify what could be better
A bad worker will blame their tools, but what happens when a good worker is legitimately being held back by the equipment at their disposal? This is disastrous for productivity, which in turn can damage profits.
Take a long, measured look at the infrastructure of your business. Consider the equipment, tools, software and hardware that you rely on every single day. If these could be made more efficient, then it’s definitely worth doing.
The best entrepreneurs are always looking for better ways to work on the same idea. This means streamlining and updating existing processes. The business model or idea doesn’t change, just its execution.
Spend on training
Training is a good way of investing in your business by investing in the people that allow it to operate.
By spending on training, either for yourself or your employees, you are diversifying and expanding upon the skills of the workforce, meaning a potential increase in productivity, and even the possibility of securing new business thanks to a new set of skills.
The time is ripe to sign up for training, even if you can’t afford it solely out of your profits, thanks to a steep increase in May 2015 in the rate that banks are lending to UK businesses.
This is a fantastic opportunity and a great chance to take action that could lead to your business increasing its profits in the long run.
Consider more lucrative options outside of your own business
If your business is doing really well and is financially rock solid, investing in other businesses is a great idea and could turn you a handsome sum in return.
Angel investment is booming in the UK and is a driving force behind the most in demand startups. Crowdsourcing and angel investment is a key funding tactic, especially with emerging digital and technology-based entrepreneurs and SMEs.
Finding a great emerging business can give a great return, but it’s risky. If the business fails, you’ll lose your investment.
The more traditional route for the financially adventurous would be to invest in stocks and shares, however, this can prove difficult if you are not used to reading markets.
If this type of financial play appeals to you, and you have the finances to afford it, spread betting could give a good return. If you are unsure of how it works, you can learn spread betting with Tradefair.
Profits should drive further growth
There’s a key theme across all of these points. That is that whatever you choose to spend your profits on, the end result should always be further revenue or growth for your business.
Yes, some of the options are more risky than others, and it would only be sensible to pursue these once more concrete options (such as investing in equipment) have been exhausted.
There will always be an element of risk involved in business spending and investment. The trick is to know what’s right and what’s wrong to spend your money on. When that fails, you better have razor sharp instincts to follow.