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A Guide to Reinvesting Your Profits

A Guide to Reinvesting Your Profits

The expression ‘a penny saved is a penny earned’, implies that saving money instead of spending it unwisely actually amounts to making money.  An equally meaningful observation might be ‘a penny reinvested (wisely), yields even more pennies further down the road’. Whether it’s a penny or 1 lakh rupees, reinvesting your company’s profits properly allows you to maximise the value of the extra money that you make. However, before you can embark on reinvestment, there are a couple of checks that you need to make.

Manage your commitments

You can only begin reinvesting your profits once you’ve met your current financial commitments. This includes expenses like overheads, salaries, and marketing. Keeping your infrastructure and the tools of your trade up to date is non-negotiable. Say you use a particularly expensive type of software package that’s designed to help you deliver niche services in your sector. You will have to earmark a portion of your profits for the purposes of upgrading this software. After all, it’s what has allowed you to reap these benefits in the first place. You must ensure that you meet these basic requirements in the immediate and near future.

Gauge business growth

Do you foresee a positive growth trajectory for the profits that your business is turning? Will this imply a concurrent escalation in the intensity of your commitments? This is to say, will your current growth trajectory require you to expand your business operations proportionally? This might mean that your financial obligations could continue to eat into your profit margins, which you will be using to buffer your growth.

A Guide to Reinvesting Your Profits

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