Whose Today’s Guest?
Ross .J. Kasikili is the Founder and CEO at Abbeywood Freight and Logistics Enterprises limited. He has over 12 years of work experience at senior management level in Branding, Marketing, Customer Service, Communication, Operations as well as Learning and Development.
Brief Overview of Profit
In order for a business to declare having made a profit in a business, it means that a business has managed to have sales that exceed the expenses within a given period, however having this profit does not equal the cash in your bank account. It is possible to be profitable and yet have a negative cash flow balance, likewise it is possible to have a positive cash flow but still be operating at a loss. It is actually easy to confuse profits with cash.
Benefits of Re-investing Profits
One of the benefits of reinvesting in the business is to ensure that there is growth. We are in business to make money as entrepreneurs and if you are not making money then there is a problem and you are not doing the right thing. Reinvesting in the business brings about sustainability. No business ever reaches a point where it is at its comfort zone, to maintain and progress as a business you need to reinvest.
Choosing what to Re-invest
In order to determine what to reinvest in, one will need to begin with conducting a market survey and understanding the industry that they are in as a business. This will help you identify areas that you can invest in and will have a better return on investment.
This means you have to invest in products or services not because a neighbor is doing it or because someone told you to but because you feel that when you put your investments in that product or service you will have a good return on investment, a quick return for that matter.
As one seeks to diversify and grow his/her business, reinvesting well will be very important as you don’t want to keep reinvesting in in a business and every time that you do it keeps on drowning.
Make sure that you carry out your research properly as your findings will be your guide on what areas your business needs to reinvest in.
Using Profits for Personal/Household Consumption vs Re-investing in the Business
Most of the times, small business owners make the mistake of combining their business accounts with their personal accounts. These two accounts actually need to be separate entities in form of the business and the individual. As a business owner you need to understand that when you have money in your business account, it is not yours but the business money.
Failure to separate the two accounts is what leads to most entrepreneurs mixing their finances, one way of trying to mitigate against this is for business owners to begin seeking for mentors, people that they can be accountable to no matter the position or title that they hold as the business owner.
Many entrepreneurs are not accountable to anyone and that’s the reason why there is so much abuse. A mentor will be there to help keep you in check by asking you to give an account of how you are spending your funds.
Another way of separating the two is for you to put yourself on a salary, you will need to do your math and bring in your spread sheets, as well as bring in experts that understand financials for your guidance to help you determine areas that you need cut off on and determine how much profits your business is making.
The bottom line is no matter how small the business is you have to always give yourself a salary. It doesn’t matter how small the amount just ensure that it is allocated for. This is because every business has a payroll, and even if you are not paying for thing like rentals you will still need to add them on your P’s and L’s as at the end of the day your business will need to pay for rentals.
If you want to have a proper forecasting where it is that you want to be as a business, you will need to factor in all the projections even if they are not currently happening in your business.
This will help you prioritize areas to reinvest in. you will need to take a step back and clearly identify the areas that need reinvesting in your business.
Making the Decision on how Much of your Profits to reinvest.
This will depend on the type of business model and the other business costs that your business incurs like rentals and salaries, the ideal amount though to reinvest in your business would be 50% of your profits and a minimum of 30% .
- Re-investing helps grow and sustain a business.
- Have a growth strategy in place to help determine areas to reinvest in.
- You can only grow wealth by reinvesting in your business.
- Learn to separate your personal from business finances.
“It’s the lack of accountability as business owners that has lead to abuse of resources”