We live in a world where running a successful business, making profits, and expanding your company are reserved for the minority. Figures can vary, but 50% to 90% of start ups fail within three years. Navigating the business world, finding product fit, and understanding your audience, all within the competitive market, is a major feat. Therefore, achieving profitability as a smaller business really is great deal to celebrate.
The question of what a small business should do with their profits comes down to the entrepreneur's outlook and appetite for risk. Here are some options you can consider as you figure out where your hard-earned profits should go.
Return the favour
Pumping profits back into your business is absolutely an option and not one to overlook. Whether you've identified a market gap, you want to invest in R&D to find a new audience, or maybe even build on headcount, channelling profit right back into your business can be highly productive. Unlike other sources of business income, profits are free of the liability of a business loan or the responsibility of seed funding. Make the most of the freedom these funds give you and consider enriching the business itself with new skills, equipment, locations or basic capital.
Scope out other sectors
Running a successful business and investing have a lot in common. Each is a game of tactics. It's important to understand that long-term goals and a conservative risk appetite are perfectly acceptable. Gaining a deep understanding of the sector and its likely movements can be key. Diversification is also key to both; further, trading could be a means of finding inspiration to diversify your own business.
Say you were to drop your profits into stock trading: you don't have to couple this with an aggressive investment strategy. Rather, doing so could help you identify new market opportunities for diversifying your income channels. As a business owner, you'll already have a keen eye for markets and a certain level of knowledge concerning how shares work. There are also plenty of online resources to teach you more about buying, trading and investing in shares.
Paying it forward
Small businesses, like any business, might take on debt or leverage as they grow, particularly in the early days. This is normal, and profits can be a simple, effective way to write off those debts or refinance them. This is a long-term approach, allowing you to enjoy future profits and grow with the lack of restraint from interest-accruing debt. As a general rule, the earlier you pay off a loan, the better, as you'll pay a smaller amount of interest overall and keep a clear set of books.
There's no doubt that a small business owner's priorities should include securing their future, whether that's for themselves or their business. It's true that people start businesses for all sorts of reasons: changing the world, solving historic problems, or simply avoid having to answer to anyone else. But ultimately, being able to set yourself up for the future should always be part of the equation moving forward - and profits are the fuel to drive you there.
Copyright 2021. Article made possible by Tom Killeen.