Entrepreneurism is in these days, and for the most part that’s a great thing. While many people who set out on their own to start businesses will fail or move on to other things, it tends to be good for the economy and for all individuals involved when more people are starting businesses.
The interesting thing however is that when something like starting your own business becomes trendy, a lot of people get into it who don’t really know what they’re doing. And that includes financially.
We’ve posted before about lean ways to start a business, trimming expensive and finding funding in creative places, and these kinds of strategies are vital for modern entrepreneurs who are still learning the ins and outs of finances. One thing that doesn’t get talked or written about quite as frequently, however, is what to do with profits if and when you get them. For a first-time business owner, turning a profit at the end of a month, a quarter, or even a whole year can be an incredible thrill. But it also presents a challenge: how exactly should you invest your new funds?
This depends on how significant your profits are, what kind of investment you have coming in, your earnings projections moving forward, and the size of your business. But for any entrepreneurs who may not have given this serious thought before, we have a brief list of do’s and don’t’s.
Do: Cover Debts
Where personal finance is concerned, there’s some debate over whether it makes more sense to invest or cover debts first. There are fair arguments on both sides. This debate extends to a small business as well, and in some cases strategic, conservative investments can still be wise early on. However, this isn’t just about your personal finance, but that of your business and any employees or investors you may have. For that reason, it’s generally wise to address debts as efficiently as possible - or at least start to. Sometimes a debt consolidation loan is all you need to get a grasp on the debt. Be sure to look of many companies like these here before making a decision.
Don’t: Pay Yourself
It’s important not to undervalue yourself as a small business owner. You should give yourself a cut of the profits that allows you to live your life and approximates, at least proportionally, your value to the company. What we mean here however is that you shouldn’t simply take profits as a personal bonus. It can be very tempting to do just that, but it’s ultimately a wasteful way to use your early profits, and at this point the growth of the company is more important than your personal comfort.
Do: Improve Marketing
This too depends on the type of business you’re running, but most every company can use a little bit more exposure and some more creative marketing. While it’s a little simplistic to phrase it this way, spending profits on an effort that will directly lead to more sales will almost certainly lead to more profits in the future. For this reason this is often a broad category that is targeted with early profits, whether it means online advertising, improved SEO, mobile outreach, etc.
Don’t: Invest In Chance
It may sound silly, but games of chance are getting more popular by the day. Sports betting is getting legalized in more places, money is flying into video games via eSports, and as stated by an Irish slot machine platform players now have more choice than at any point in history when it comes to casino games. Now, it’s quite obviously irresponsible to invest business profits in these kinds of activities, unless you’re a one-man (or -woman) show and your business profits are pure extra. But this still bears mentioning, because games and other experiences of chance involving real money have become significantly more popular in recent years.
Do: Outsource Inefficient Tasks
With your first meaningful profits, you don’t want to go on a hiring binge. If you’re profitable, you’re doing things right, and you don’t necessarily need a ton of new employees. However, it can be beneficial in the long run to pick one or two inefficient tasks - say, bookkeeping, HR, etc. - and outsource them to new employees. And don’t just accept the first qualified applicant you get! In a piece on money mistakes business owners continue to make, Forbes made a terrific point that owners should hire the best - not hire cheaply. It may cost more up front, but it’s a better long-term investment in the company.
Don’t: Expand Your Offerings
This is difficult advice to offer because at some point you might want to expand your company’s offerings, and it may make sense to do for. But generally you don’t want to jump the gun when you first take in profits. Instead recognize that this is a sign you’re succeeding at what you do, and try to bring about a better version of that. Then, down the road - when profits multiply - you can look into expansion.