3 Ways to Re-Invest Profits in your Business
Profit for your business is any money left over at the end of the year after all business expenses and taxes are paid. It’s common for a business to distribute its profit to the owners of the company so they can use the money personally, but it can be more lucrative for the owners of the company to re-invest these profits into growing and improving the company. They might forgo the personal income in the near term but the business growth can bring them much larger income and equity value in the long-term with careful re-investment of profits. Below are 3 common ways a business can efficiently re-invest profits to create future growth.
1. Create New Products
Creating new products to sell costs money. You’ll need to source new materials and set up new operations, so some amount of cash investment is required to make new products. This is an effective way to grow your top line because likely a portion of the new products you create will be successful. For example, I own CRAVEBOX – we sell snack boxes online. I am consistently creating new snack box varieties but to do so, I need to invest in buying new products, commit to minimum orders, etc. So it costs money and not all of the new products are successful. But if I create 20 new snack box varieties in 2022 and only 6 of them are successful, it’s still worth the investment, and my business will have still grown significantly. In the long run, this is often a great return on investment and more effective than simply pulling the profit out of the business for personal use. In the future, these new products will create more revenue, and profit, and increase the value of your business that you can someday sell.
2. Vertically Integrate
Another way to re-invest business profits is to vertically integrate a part of your operations. This requires an upfront cash investment but usually can generate great returns on that initial investment. For example, if your company ships and receives goods via freight transport, you likely need to hire a logistics company to reserve a truck and driver for the hours needed to pick up the goods and bring them to your facility or pick up your outbound shipment at your facility and bring it to its destination. This can become very costly as your shipping volume increases. You could alternatively buy your own tractor-trailer, hire a driver in-house, and start shipping and picking up goods yourself. This will be costly upfront because you will need to outlay a large amount of cash to purchase the truck, fuel, necessary licenses, and hire the driver, but over time, you will save significantly on each shipment and the investment will pay for itself. Another example of vertical integration is in my business CRAVEBOX, we purchase snack products to include in our snack boxes. We could invest in leasing or buying snack manufacturing equipment and start manufacturing our own snacks to put in the snack boxes. This would be a large upfront investment but over time, we’d save on every snack we put in our boxes and it would pay off.
3. Hire New Employees
You can hire a new employee to take work off your plate so that you can work more on growth. Or you can hire a new employee who works on a new growth path for the company. For example, maybe you’re bogged down by administrative work, paying invoices, managing staff, etc. It could be very effective to kickstart growth by hiring an employee to take these tasks from you so you can work on other more future-leaning tasks. Or you might decide to hire someone to specifically work on growing a certain part of the business. Maybe your business has historically only sold online and you’re looking to start selling in brick-and-mortar retail. It can be effective to hire someone who focuses solely on getting your products into retail stores. Again, this is an investment of profits because it obviously costs money to hire someone but it can be very effective, especially if you find the right person. A company is simply a group of people working to sell a product or service at a profit. Your company’s success is directly related to the quality of employees in your company, so this is always something worth working on.
About the Author
John Accardi is the founder and CEO of cravebox.com and starcoursecap.com. CRAVEBOX assembles care packages and gift baskets to be sold online. STARCOURSE CAPITAL is a venture capital firm that invests in young e-commerce companies. John dropped out of a Ph.D. program at Georgetown University in 2014 to start CRAVEBOX and he says it’s the best decision he ever made. He now runs the businesses out of North Wales, PA, and also lives in Manhattan part-time. When John’s not working, he enjoys sailing, playing guitar, and spending time with family.