Reinvesting in your business

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It makes sense in many respects to reinvest any free cash in your business.

Building a cash buffer for lean times is always a good strategy, but your reinvestment does not have to be limited only to this.

Putting aside profits is the most effective way to stave off a crisis in the event of unforeseen circumstances cropping up. It’s also a great way to reduce your stress. Such money should ideally be placed in an interest-bearing account, such as a money-market account, that gives you some flexibility in terms of how quickly or easily you can access that money in case of a cash emergency. This type of proactive cash management will also help you to demonstrate prudent business sense to potential funders or business partners.

Improve efficiencies that will increase your productivity, and thereby profitability: This could be in basic business equipment that allows you or your staff to be more productive - whether a faster computer, printer or software. Such reinvestment is in the long-term sustainability of your business.

Invest in yourself or your employees through training: This could be to increase your knowledge or understanding of an aspect of your work, or in an area, you would like to expand into but currently, don’t have the expertise.

 

Consider activities that add value to your business and brand: This could be in marketing activities that will bring in new business, or in freshening your brand or packaging if you’re in the product business. These last two activities should always be undertaken with a portion of your profits once you’ve squirreled away the bulk of your cash into some form of long-term savings. Business, by its very nature, is unpredictable. By adopting a responsible attitude towards your cash reserves you should be able to ride out any hiccups. Once you’ve reached a point where you have your future secured against unforeseen crisis you can start considering taking additional profits out by way of dividend payments to yourself or business partners. You will also know you have the right business partners if they recognize the importance of building a buffer instead of demanding that profits be paid out to shareholders.

Key takeaway: Business survival is about being able to ride out the lean periods by having managed your cash resources prudently. Plan for the long term by being responsible in the short term.

 

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38 comments
  • Living the rockstar lifestyle is a very easy trap to fall into so important to stay modest and think frugil!
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  • Well TheTastyChef based on your comment I also learned to diversify my client base as much as possible I also relied very heavily on one single client but when they changed their procurement procedure I found myself competing against other suppliers with much lower overheads so could beat me on price point the only way for me to stay in business was to ensure I had a higher quality product but also reduced overheads to offer more competitive pricing.
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  • Hahahaha where did Thayn Disappear too?
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  • I think it is also very important to also realize that reinvesting in your business does not necessarily requirelarge sums of money as entrepreneurs the biggest investment you can make is to invest in yourself and in the age of information very often this is free! Google Ted talks as well as a whole host of universities that are offering free online courses means that it is now easier than ever to upskill yourself and strengthen your weak points as an entrepreneur and business owner. Marketing your business has also become a lot more affordable if you are willing to use a little sweat equity social media truly allows you to drive your business with just some time effort and a little help from your friends.
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  • The problem is that as soon as money stars rolling in most small business owners go straight to PAYE and that is not the income tax its Planes Automobiles Yachts Etc In the early days you don’t need a faster car or a fancier phone you need equipment that generates more product or a marketing plan that generates more income. It is such a familiar trap
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  • fortunately the shop door was open for my exagerrated exit!!
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  • ALWAYS very wise to invest in yourself! Every day we should strive to be a learner and a teacher. I have a slightly different take on the strengthening of your weaknesses though.... if at all possible rather strengthen your strengths and employ other assistance to take care of your weakpoints. Maybe thats why a fast bowler should always bowl with the wind rather than against it??
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  • Most of us start our business on a wing and a prayer and hav no idea what our operating expenses are. Do you have any ideas on how to calculate that in the early days and how to start puting that money away for those rainy days.. I knw that is advice I could really use
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  • night gents...us eastern cape peeps got places to go people to see! Nice chatting... keep well Gareth you to Mike
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  • Lol..... you sound well heeled :) Check out @AdvThaynCfp.....
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  • True story Mike! I have started every venture I have tried on a skill or idea I think people could use with nothing but my own confidence and a little savy (only after a few years though) and some more successful than others...what business are you in?
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  • So the one thing I have learned is that business cycles come in waves you are never too sure how deep or how strong they will be and one thing I have learned is surround yourself with great swimmers who can help you. And of course a trusty life boat would be nice
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  • Thanks Gareth mainly Twitter a bit on Linkedin https://www.linkedin.com/in/thayn-niemand-cfp®-7482709 and some articles for Moneyweb...abd you?
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  • I like Gareth's comment but even if you start with an affordableamount that is put out of sight but still accessible... eg if you have an access bond pay a small amount extra every month if you dont have a bond open a seperate account that is linked to your operating account
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  • I Have mentored quite several young start-up entrepreneurs over the years and one of the biggest comments I have received over the years when I suggest that they reinvest in their businesses is always that they do not have the money to re-invest. I have 2 comments regarding this…. First if you do not have the Finances to re-invest in your business you clearly have a cashflow issue! What is it and how can you solve it? And the second is… Do you really need cash to re-invest in your business? Is there anything you can do that only requires a bit of time effort and legwork? A few other suggestions on investing in yourself that I have would be reading… read books that motivate and inspire you to get out of bed in the morning and excel and being an entrepreneur… read books that teach you and help you achieve your goals and objectives and that help you master your chosen industry. I am also a massive fan of Ted talks Ted Ed documentaries and videos that inspire and motivate me to succeed. Exercise it is amazing how much better you feel and how much more effectively you deal with the stresses of entrepreneurship simply by getting regular exercise and living a healthy lifestyle. To coin Richard Branson make time for an inspiration vacation get out of the city and away from the distraction and work on your strategy sometimes you just need some time away to re-ignite your passion for your business! Take time to Network Find a Mentor. Educate those around you about your business… they may just become your best marketing tool.
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  • You got into the recycling business @mikesaidwhat ????
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  • Thanks Cash Flow Guy how do we follow you on your various channels? I could sure use the help and I have plenty of shoe boxes I could use to sort out my accounts(from my early days of spending my profits!!)
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  • I enjoy reading books that deal with negotiating skills one I can recall @Mikesaidwhat was something like 62 ways to negotiate a better deal' short easy and very useful
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  • Cashflowguy could you please share you links so that I can also follow?
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  • hi I kike to suggest an amount equal to have 3 to 5 x your monthly budget in reserve
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  • The old days on It's My Biz Watch this YouTube
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  • For those of you who don't know THE CASH FLOW GUY he is worth follwoing on all channels he has simple and practical advice for small business owners I remember him expalining how you can start your accounting with a couple of shoe boxes and work up from there. Ony problem is after 10 years I am still using the shoe boxes
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  • I agree Mike this info should be readily accessible. I did find an article the other day that was pretty interesting though: http://www.inc.com/john-boitnott/how-much-of-your-business-capital-should-you-reinvest.html
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  • Thank you for your interaction and will be calling on your help soon
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  • That's UPCYCLING to you sir! Visit www.tufcom.com and take a look. It's a scary prospect starting a new venutrue at 55 but what the heck
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  • So try Mike think it is important very early on to decide exactly what percentage you are willing to set aside every month to reinvest in your business. Aside from that one very simple strategy I use is to transfere my vat allocation for each job into a seperate account after every payment recieved (I also round it up to 15%) after all the VAT caculations and payments are done I accumulate those small amounts in that account.... It is amazing how much you manage to save by the end of the year with out much effort.
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  • Very well put... Invest is not always a financial term or commitment
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  • One of the early challenges is to understnad what percentage of turnover you need to allocate to reinvestment. Wouldn't it be great if their was a guideline that we could all work on? And then of course we shouldn't forget that reinvestment is not just in stock and equipment but in yourself and your staff too... upskilling yourself or yourstaff is also an investment
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  • Let me try that again www.tufcom.co.za
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  • Hi thecashflowguy would you mind elaborating for me? How do you build up to this as a small business?
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