How to make the best use of your business profits

The goal of any business is to turn a profit. Beyond that, a business needs to grow and expand if it is to succeed, and along with that growth the profits earned should increase. So how can those initial profits be used to their best potential, in order to help your business thrive and prosper?

Put it back into the business

The most obvious step is to reinvest initial profits back into the business helping you to see the Total Cost of Ownership. Obviously by profits we mean surplus capital or earnings after wages have been paid, essential running costs covered and existing debts paid off. Some degree of reinvestment is essential if you want your business to grow into the future. New or replacement tools and equipment will doubtless be needed. You may want to purchase a new vehicle, or move into larger premises. No doubt, you already have your own list of business items you’d happily spend money on.

Cash flow

A question worth asking though is how much money should you reinvest in your own business? A good rule of thumb is to put about 50% back in. That leaves you with a reasonable amount of liquid capital available to meet emergencies and to ensure ready cash flow. The rest however should not simply be left sitting in a bank account but be put back to work.

Investing elsewhere

It’s also a good idea to invest some of your capital outside of your business. This might involve buying shares in a firm that operates in a completely different sector. This way you’re not supporting any of your rivals and you’re hedging against the possibility (however remote) of a slump across your whole line of business, one that will affect you regardless of how well your company is doing. You might make the best oilfield equipment in the world, but if all the oilfields go bust you’re sunk- unless you have investments elsewhere.

As well as investing in other business sectors, you might want to speculate on other assets such as currencies and commodities. This can easily be done through an online broker like City Index that gives access to a wide range of global markets as well as tools to help traders improve their skills. This City Index Review shows how they measure up against their online competitors.

Knowledge is power

Another good use of surplus profit is to invest in yourself, or members of your team, by paying for education and training. A successful business leader always looks for opportunities to learn, and paying to take a relevant course or to learn new skills is never money wasted. If you take this route, you might also want to consider the tax benefits of investing in your business education this way.

There are so many better ways to use your profits than simply handing them over to the bank. Money likes to keep busy, and working money grows where idle money loses value. With a successful business, turning a profit is only the beginning.

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