Any profit gained in the first three to five years of your business—the period which most small business owners recognize as the most crucial stage of development—is considered gravy. This is because one sad reality is, most startup businesses are bound to hit snags along the way, or worse, ultimately fail.
One of the main culprits why startups fail is the lack of capitalization or alternative sources of funding for their operations while still trying to gain footing in a highly competitive market place. That’s why knowing where to put your initial profits is such a big deal. In short, you should be very deliberate in planning how to spend the profit which you earned early on.
Business consultant Angelo Mendoza of RedBiz Inc., a local company that helps SME’s solve cash flow problems, gives a few pointers on how small businesses can maximize the early gains so it can snowball and propel the business to success.
Make it about the business first
As sales margins increase and cash begins to flow inwards, most entrepreneurs may be tempted to use their good fortune to splurge on celebrations with family and partners, or on personal add-ons such as cars and cellular phones. Mendoza says a little fun is okay, but business owners should always remember to put the company first.
“A good way to resist the urge to spend too much for your personal enjoyment is to open a separate account for profits alone. The funds from this should be used exclusively to explore new methods to grow- either for product improvement, buying equipment and other facilities, hiring new people, advertising, or marketing campaigns,” he suggests.
To stay competitive against bigger companies with deeper pockets, small businesses need to be more innovative and cutting edge. Investing your profits to fund research into new products or improving the current one is a sound way of ensuring business viability. It is also a good way of padding your reputation in the market sector you service.