When you start a business of your own, one of the things you have to figure out quickly is the best way to put your profits to use. Naturally, where necessary, you’ll need to infuse some of them back into day-to-day operations. Additionally, as soon as it’s appropriate, you’ll want to pocket your share so that you can actually benefit from the business. But if your business is really starting to generate some income, you may well want to look into various forms of investment as well.
This can serve three purposes. First, if you opt to reinvest funds in the business, you may find that you can soon be generating even greater profits. Second, you may be able to do some personal investment that puts you at ease financially and allows you to focus more completely on growing your business. And third, you may simply be able to start letting your share of the profits grow, such that you compound your earnings and truly get as much as you can out of all your hard work.Keeping these ideas in mind, we’ve decided to discuss a few of the ways a small business owner might begin to invest their profits.
1. Support Employees
We touched on the idea of reinvestment, and one of the most effective methods of reinvestment with regard to small businesses is supporting employees. Sometimes this will actually mean hiring new people to perform tasks that need doing as the business begins to grow. However, it can also mean taking steps to keep existing employees happy and productive. This improves company culture, makes you attractive to potential hires, and helps the business to get its work done.
In 2020, directing some of your profits toward helping employees might also mean finding ways to support remote workers. This can involve implementing new time-monitoring software, setting up new customer service mechanisms, or even investing in new programs that will allow everyone to communicate effectively. Whatever the specifics, supporting remote workers has become an essential effort these days, and thus a fitting place to direct funds.
2. Invest in IT
In a prior guide to IT investments, we noted that 88% of businesses expect IT budgets to grow or stay steady over the next 12 months. In other words, a vast majority of businesses expect to be spending steadily on IT — which means you should probably prepare to do the same. Granted, it’s a broad category. But by assessing your business, polling your workforce, and possibly assessing competitors, you can gain a clear picture of your own IT needs, and begin budgeting to fulfill them. This too can be an excellent avenue for reinvestment, because it directly helps the business to expand and improve. If you put profits toward IT growth now, you’ll have more profits to invest elsewhere — including for yourself — moving forward.
3. Set up a Retirement Fund
Studies have shown that small business owners neglect retirement savings. Some of them (about 18%) specifically plan to fund retirement by selling their businesses. Others report having spent retirement savings to get businesses off the ground. And a significant group (37%) says there simply aren’t enough profits to save for retirement.
Clearly that last one is a difficult problem to address. However, if you’re in the process of deciding what to do with any personal profits you’re pulling from your business, you may want to direct a percentage — even if it’s a very small one — toward retirement. It’s never too soon to start a fund of this nature, and even small amounts can start to grow. You’ll be more comfortable personally for it, but you may also be a better business owner if you know you’re taking care of your future.
4. Set Up CFDs
On the personal investment front, a lot of small business owners (and individuals in general) will gravitate toward the stock market. Unless you have a reliable manager for your account though, trading stocks on your own is likely too demanding while you’re also running a business. It’s for this reason that we’re highlighting the alternative method of CFD stock trades. Standing for contract for difference, a CFD rewards a trader with a payout if said trader successfully predicts the direction of stock value. Through this method, instead of having to buy and sell stock and monitor the market in real time, you can observe the assets you’re interested in and set up contracts that speak to your speculation. It’s essentially stock investment without the same requirement of attention or activity, and while it still requires research and strategy, it can yield gains for people busy with other projects.
5. Establish an Emergency Budget
Finally, 2020 has taught us all over again the immense importance of having an emergency budget — or a “rainy day fund,” if you will. This doesn’t mean that you’re expected to have thousands of dollars set aside just in case a pandemic happens. But it does mean that virtually any business can benefit from its owner setting some cash aside for miscellaneous emergencies. In the best of cases, you can calculate your rainy day fund based specifically on your business's needs and finances. But even if you don't quite have the resources to be so detailed about it, putting a fraction of your profits away now can help down the line. In a real emergency, a little bit of cash can go a long way.
