From a cash flow planning perspective, strategic reinvestment is using the funds that a small business earns today to reinvest back into the business for continued growth tomorrow. Simply put, we’re using money to make money, and strategically reinvesting money in your business will enable it to grow enough to compete with larger companies who offer similar goods or services.
Upon turning a profit, the next step is to clearly define goals to determine where you want your business to be the next 12, 24 and 36 months. It makes sense to work with a professional CPA who is a specialist in small business growth. They can help evaluate your financial outlook and then develop a strategy to reinvest in your business in a way that maximizes growth opportunities.
At Fusion, our team of experts strives to understand your business model prior to developing a reinvestment or growth strategy. We need to understand where your money comes from and where it goes. We need to also look at your cash flow and what the drivers are. Once we understand the true revenue drivers, we can analyze the best way to utilize each. Many companies often have only a vague idea what expenditures most profitably drive their revenues until our team points dives in.
Typically, a strategic reinvestment plan will go towards either funding marketing strategies or hiring more talent. Perhaps your business could benefit from an expanded support team to ensure customer satisfaction, or maybe investing in additional sales staff makes sense in order to gain new clients. Depending on your business, there may be equipment you should purchase such as a better quality printer for a print shop or an x-ray machine for a dental practice.
Entrepreneur Magazine also suggests reinvesting a portion of your profit into a strategic marketing campaign designed to grow your business. If marketing is your strategy to gain more customers, make sure it is measurable. It’s imperative that you track the ROI. Thus, if after a couple of months of measuring results you find that you’re making $10 to every $1 spent on Facebook ads, that would be a better choice for your ad spend than an area where you’re only earning $5 for every $1 spent.
Once your growth goal is determined, a cost assessment is made to determine how much money needs to be directed to achieve that goal. In the short term, you typically find that expenses will outweigh revenues as you are testing and getting your strategy ramped up. This amount will reduce the current year tax liability, so there is some sense of an immediate payoff in terms of less money owed to the Internal Revenue Service.
Are you ready to lower your tax liability while also taking the steps to ensure your business continues to grow? Call us today at (404) 955-7338 so we can get started on your reinvestment strategy for 2017.
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