Emotions may drive you to spend it all on yourself or hoard it. After all, you may feel you've earned the right to spoil yourself.
Or, you may feel your business deserves a more prudent approach so you'll save it for emergencies later. However, both solutions are imperfect.
More than a decade ago, when my two co-founders and I started our first company together, we firmly believed that every dollar earned was an opportunity to reinvest back into the business. We limited frivolous personal spending but actively sought new opportunities to employ our capital towards long-term brand investments.
Although the three of us shared a small apartment to save a few hundred dollars each month, we were happy to use our profits to take business risks and fund projects we believed would later reap dividends. Even when our company hit its first million dollar milestone, we continued to be prudent in our personal spending but strategic with our capital allocation.
One thing we also knew was there was opportunity cost in just holding onto our profits. According to the Organisation for Economic Co-operation and Development (OECD), inflation in the U.S. was just over two percent in the past 12 months. This means you lose money when you don't actively invest it.
At Amerisleep, we've worked hard to productively reinvest our profits and, thankfully, we've been able to multiply our sales and bottom line year-after-year. Here are three recommendations I'd make to other business owners who are uncertain about how to spend their profits next:
1. Invest in professional development.
Your existing employees are among of your most important assets, and investing in professional development programs for them can create benefits that ripple throughout the organization.
First, you'll be giving your team members a chance to learn and practice valuable skills that can improve your company's performance in a variety of areas. Second, it's a huge contributor to job satisfaction and employee loyalty.
A 2017 study by Ceridian found 91 percent of top-performing employees indicated that professional development opportunities were important considerations in choosing their employer. By providing access to these programs, you improve employee engagement, which can lead to higher productivity and employee retention rates.
2. Outsource tasks outside your core competencies.
When you first start a business, hiring a graphic designer to create your logo can seem like a prohibitive expense. So, you spend hours learning Photoshop and days tweaking your design because, at that stage in your company, your time is abundant and free. However, in a rapidly growing organization, leaders quickly realize how valuable and limited their time is, so they delegate responsibilities that are outside of their core competencies.
Of course, hiring full-time staff to fulfill roles in every department in the organization may not be cost-effective either. But how can you be expected to handle everything from marketing to IT management to HR to accounting, especially when your growth facilitates the need for additional manpower?
The answer often lies in outsourcing. While some entrepreneurs are wary to cede control of their processes, there are many quality agencies, consultants and freelancers that can provide numerous types of affordable services on a contract basis. Plus, when you outsource tasks, you get to leverage each vendor's unique expertise and skill sets.
3. Defend your company's competitive advantage.
A key factor in a company's long-term success is its ability to develop and defend its competitive advantage. To do that, you need proprietary products or processes that are often the result of years of ongoing research and development.
For us, we've invested millions in our mattress materials and design to manufacture a product that delivers on our promise to provide more restorative sleep. Over time though, as new innovations are introduced to the market and customer preferences change, my company will have to stay ahead of the curve in order to maintain and grow our market share.
We can't get complacent. Otherwise, our competitors will produce a better product and that's a risk we can't afford.
Use your profits wisely to ensure your business experiences healthy and sustainable growth with the help of trained staff, expert consultants and an ever-improving range of products.