When your revenue grows more than enough to cover your expenses, it means you’re finally earning excess profits. This is a sign that your small business is ready to make investments.
There is such a thing as “too much profit.” It may sound good, but it could also mean you’re not utilizing your funds enough. As such, you might be missing out on income-generating opportunities.
Keeping cash on-hand idle reduces the return on assets. Hence, consider the following ways to use your excess profits:
1. Employee Training and Development
Many employers pass on the chance to train their employees because it impacts productivity. True enough, attending career development seminars can take time off work. But this is a gamble you must make if you want your team to envision working with you for the long term.
It’s not enough to train them only once. Instead, employees should re-train periodically. It would prevent their careers from going stagnant. Periodic training will strengthen their skills and expand their knowledge. This can help reduce their weaknesses and stop certain employees from relying on their colleagues to fill those weaknesses in.
Moreover, an employee who trains continuously improves their performance. They become more aware of standard practices and the higher-ups’ expectations. Training also boosts their confidence by making them understand the industry and their responsibilities better. This can urge them to push their limits and gain ideas to excel further.
But to see these improvements from your employees, you should also increase their wages. Consider it an investment as well. Investing in your employees’ careers and well-being will motivate them to stay and perform at their best. That’s because they feel valued, appreciated, and therefore satisfied.
2. Increasing Your Marketing Budget
Marketing may seem like a no-brainer, but surprisingly, many small businesses do it wrong. Marketing is more than just releasing ads and using social media. It should also cover financial aspects, branding, customer service, and all departments in the business, basically.
If you’re ready to grow your business, you should even be more careful with your marketing budget. Before increasing it, set new marketing goals first. Determine the revenue you aim to reach and how you’d reach it, for instance, by generating more leads and increasing conversations. Then determine the practices that’ll help you accomplish those.
For example, today’s trend is supporting sustainable brands. Thus, consider if going green will help you reach your marketing goals. Invest in eco-friendly packaging or get a sustainability certification. You can also switch suppliers if your current ones aren’t eco-friendly.
Once your plans are final, follow this recommended rule: spend between 12% and 20% of your revenue on marketing. Ensure that all your marketing strategies, like paid ads, events and engagement, content, web design and development, and software, would fit in that budget.
3. Securities
Securities refer to stocks, bonds, mutual funds, etc. A small business can also make these investments to grow its capital. If you’re a limited liability corporation (LLC), you or any one of the owners can be authorized to buy securities on behalf of your company. You and all your co-owners can also exercise this authority together.
If you buy secure equity trust funds, you may be charged a capital gains tax, but equity funds make a good investment for beginners. The minimum investment required is relatively lower compared to other securities. A fund or portfolio manager also manages it, so you can focus on your business while waiting for your investment to earn. Rest assured that it is low-risk security, so economic downturns aren’t likely to decline your investments’ value.
4. New Equipment
Increasing your revenue means your business has also earned a treat. Enjoy the fruit of your hard work by buying new equipment your business needs. If your team is growing, you may need new workstations and/or a break room extension. If your A/C has been acting up for a while now, use your excess profits to finally replace it.
Non-work-related purchases, like a new espresso machine or bathroom fixtures, won’t hurt as well. They’re for your employees’ comfort. As such, they’ll improve the quality of your workplace and help them stay motivated.
5. A Company Excursion
Since excess profits mean you’ve reached your goals, your company deserves to celebrate. This is another way to keep your employees motivated. Besides, without them, your business wouldn’t have succeeded.
So step out of your desks for a day or two, and immerse in some fun team-building activities. Make it one to two days of letting loose and setting aside work. You’ve earned it after working hard to boost your revenue and profit.
Reaching this point in your business can feel impossible for some, so use your excess funds wisely. Know your priorities and think of the quality of your investments instead of their quantity.
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