The goal of a business is to make profits. However, achieving this objective is not easy. A business could take months or years to break-even and start making money. There are multiple factors at play behind the scenes.
An entrepreneur has to monitor the daily cash flow to make sure the business is not losing money through mismanagement or theft. They have to invest in marketing campaigns so that they can engage prospective clients. They also have to invest in employee training to improve the customer experience and boost brand loyalty. The business owner must also settle electricity bills and other office expenses. In general, a lot goes into managing a business and making it profitable. Advisors Alliance Singapore aim to the educate and bring awareness regarding financial literacy.
So, what happens after you make your first profit? You have three options:
- Invest the money
- Reinvest the profits
- Repay outstanding debts
The financial needs of your business and market conditions will determine your investment strategy. You can decide to assign distinct portions of the profit to all three options.
Repay Outstanding Debts
Repaying your debts on time improves your credit score and provides your business with a lifeline. Once you clear your loans, you can borrow again anytime you have a cash flow crisis. So, how do you decide the portion of the profit that will go to repaying debts?
First, consider the loan amount. If you can afford to repay the loan and still have some cash leftover, do it because the longer you stay with debt, the more expensive it becomes. Next, consider the loan maturity. If it’s a long-term loan with flexible payments, use a modest portion of the profits to repay the debt. Third, consider the interest rate on the loan and rate of return on investments. If the return on investments will be higher, that’s where most of the money should go.
Reinvest the Profits
When you reinvest the profits, you’re putting money back into the business to grow it. The portion that you’ll reinvest will depend on past performance. For example, if re-investing in the marketing department has always led to a satisfactory return and better performance, you can re-invest a similar or slightly larger amount this year.
Invest the Money
You can use the profits for other investments. You can diversify your company’s stock portfolio. Is there a new sector that’s emerging? The interest in artificial intelligence and machine learning has been growing. It means that stocks related to these two sectors have the potential to increase in value in the upcoming years. Therefore, you can invest in these stocks to boost your portfolio.
You can also invest in cryptocurrency. Cryptocurrency exchanges like OKEx allow you to buy and sell Bitcoin, as well as all other major cryptocurrencies, directly through their platform. Just like the stock market, the idea is to buy cryptocurrencies at a low price and then sell them later at a profit.
To conclude, combining the three strategies mentioned above will help you multiply your business earnings. The portions assigned to each strategy will depend on your future cash needs. For example, if you anticipate a surge in orders over the next year, your priority should be increasing capacity and personnel. As a result, you’ll reinvest a large chunk of the profit back into the business.