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10 Ways You Should Invest Your Company’s First Profits

When the company finally starts making money, invest it so that it keeps making money.

John Boitnott

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You may have heard of the tradition of saving your first dollar from your first sale. Mom and pop stores have them framed near cash registers or tucked lovingly into office drawers. It serves as a symbol for the toil and joy of building a business.

So you’ve earned your first rand(s), and now you’re wondering what to do with them. Here are some of the best ways to invest and reinvest your company’s first profits.

1Business improvement

Most startups spend their initial profits in reinvesting, and your company should be no exception. The key to reinvesting is to have a sound strategy, not to necessarily devote a certain percentage of your profits. Your reinvestment efforts should be in line with your current strategic plan.

Most business owners choose to reinvest their profits in business improvements – for example, infrastructure, equipment, streamlining business processes, or finding ways to improve the customer experience. These are all valuable strategies because they can increase your profits in the long run, allowing you to expand business operations.

Related: Successful Entrepreneurs Limit The Downside To Maximise Profits In The Future

2Marketing

Digital marketing is always a smart investment of profit, when it’s done well. Many of the startups I’ve seen over the years wait several months before they do any real investment into marketing. Sometimes it’s because they just don’t know where to start.

You can’t lose by investing in performance metrics. Always keep track of your campaigns and adjust them accordingly. If you have little experience with marketing, consider outsourcing to an agency.

3Invest in your team

Building a better workforce will streamline your business, improve productivity, and create the kind of company culture that will attract hard workers. Reinvest profits in human resources initiatives such as training and continuing education.

As your company grows, you can expand to include benefits packages and other discounts. Investing in your employees early on will help you reduce turnover.

Keep in mind, hiring a new employee costs a lot of money – about six to nine months of a lost employee’s salary, on average.

Related: How Smart Managers Drive Profits

4Invest in yourself

Find ways that you can improve yourself in subject matter expertise. For example, many startups are spearheaded by people with a good eye for innovation but who don’t necessarily know how to manage people.

This is actually one of the most common criticisms founders face. Classes on management or basic business operations can be invaluable for people who don’t come from a formal business background.

5Hire help

To that end, entrepreneurs are also guilty of trying to wear all of the company hats. Recognise when you need help, and ask for it. New hires can provide the technical skills and know-how to keep your operations running smoothly. This is one of the best investments you can make in the long run.

6Consider coaching

If you’re unsure of how you should create your strategic plan, consider using some of your profits to hire a career coach. These professionals can provide guidance on executive leadership, creating a business strategy, talking to investors, and handling conflict between employees, among other things.

Related: What the Power of 10% Rule Can Do For Your Profits

7Outsource your least favourite tasks

We all have a dreaded task that sucks some of the joy out of running a business. For some, it’s balancing the books or running payroll. For others, it’s assessing and tracking the efficacy of marketing campaigns or content creation for the company blog. Fortunately, you can outsource most of these to third parties. Find someone qualified and hand over the task.

8Improve your SEO

First, if you launched a company without a website, create one. Second, spend some time, money, and energy getting that website to the top of Google’s Search Engine Result Pages (SERPs). For the uninitiated, Search Engine Optimisation is a tricky beast, but you’ll get the hang of it (or find someone qualified and outsource it).

The small business administration offers a useful primer on the topic, as well as other resources. If you’re looking for a way to see a significant return on investment in a relatively short time, this is one way to do it.

9Create a cash buffer

While reinvesting in your business is great (and necessary), make sure you’re sitting on enough cash to handle problems that may arise. While your business insurance policies will cover the disasters and catastrophes, it’s always advisable to have liquidity available for when you really need it.

10Don’t diversify too early

Many budding entrepreneurs make the mistake of diversifying their investments too early in the process. Stocks and bonds are important, but so is building your empire. To invest your first profits, start with what you know. No one knows your business like you do, so it seems like the natural place to start.

For now, enjoy your first profits by putting them back into the fruits of your labor. Take care of your employees and customers, and your profits have a better chance of growing organically. With time and proper investment, you’ll soon be poised to open another location or expand to a new market. Reinvestment will always be a smart business move.

This article was originally posted here on Entrepreneur.com.

John Boitnott is a longtime digital media consultant and journalist living in San Francisco. He's written for Venturebeat, USA Today and FastCompany.

How to Guides

Making Money Online: 10 South African Entrepreneurs Doing It

You don’t need an eight-to-five job or stacks of capital as the launch-pad to start a business and create your own source of income. Here are 10 entrepreneurs who’ve found some unconventional ways of making money online using common platforms.

Diana Albertyn

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Fintech And Small Business Success: 5 Tips For SA’s Fintech Start-ups

Let’s look at what the future holds and how small businesses can benefit.

Colin Timmis

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Around the world, the fintech revolution is disrupting our relationship with money, both in our personal and business lives. This global market is expected to be worth $10,499m by the end of 2018 – and digital payments account for much of this growth. This means it’s an exciting time for small businesses looking to get ahead. Whether they’re fintech developers, users or both, these businesses are putting new technologies to work and benefitting hugely.

South Africa’s small business community, like elsewhere, is embracing fintech with enthusiasm. To make the most of  this energy, new incubators and accelerators are setting up shop across the country. Cape Town, for example, hosted its first ‘Startupbootcamp’ which focused on creating scalable technology solutions for financial services and related industries. At Xero, we recently launched a virtual hackathon to enable South Africa’s technology entrepreneurs to compete with other forward-thinking developers on a global scale.

Against an energetic business landscape, fintech presents an attractive market for SA’s budding entrepreneurs. In today’s competitive business environment, new technologies are key to meeting your target audience’s needs and expectations.

So, how can entrepreneurs take advantage of what fintech promises? Let’s look at what the future holds and how small businesses can benefit.

Think smart, grow fast

The range of available fintech solutions and tools is vast. However, new technologies alone are not enough to get your business off the ground – and keep it there. Here are five tried and tested tips for small business owners to keep in mind at all times.

Related: Fintech: Fusing Finance And Technology

1. Have an idea

Entrepreneurs first need an idea, then a plan supported by realistic goals. Your idea has to be good: ask yourself what you’re going to sell, and why. Once inspiration has struck, subject your idea to some hard scrutiny. Chances are someone else is already doing something similar – which is fine if you can do it better.

2. Build a plan

Your business plan is your map. It will help you launch your idea with structure and thought, and guide your company’s progression. You don’t need to stick to your plan like glue: Flexibility is certainly a virtue. A new twist or turn – as long as it’s on the right track – could take the business forward faster.

3. Be flexible

Of course, if something isn’t working then don’t be afraid to abandon it and move on. Fear of failure often results in entrepreneurs throwing good money after bad. Know when to scrap an idea, take what you’ve learnt and focus on something new. Remember, there’s no point crying over sunk costs.

4. Stay alert

When it comes to new ideas, look at what’s old and needs refreshing. Keep a constant eye out for ways to disrupt the status quo and offer people a better way of getting what they need. Even if your business is running smoothly and doing well, if you don’t stay alert, you could lose out on some low-hanging fruit to a competitor.

5. Use technology

Startups are typically constrained by limited resources – namely time, money and labour. A solid plan will help allocate your resources effectively. Fintech solutions can provide a strong backbone that helps you enhance your capacity, manage your cash flow better and improve productivity.

Related: 6 Lessons The Founders Of iKhokha Used To Launch An African Fintech Start-up

The future of fintech in SA

South Africa is fertile ground for fintech. A lack of legacy infrastructure – particularly in outer lying areas – has created a large underbanked rural population hungry for financial services. What’s more, a growing urban middle class is demanding more sophisticated solutions to outdated forms of payment processing.

Fortunately, these demands are not falling on deaf ears. The local tech community is part of a dynamic development ecosystem that is working hard to innovate tools that provide greater financial access. With a clear gap in the market and an eager target audience, the future for fintech developers and users in SA is looking stronger than ever before.

Regardless of what your business offers, where it is based, it’s size or age, it’s time to join the fintech revolution. By embracing relevant solutions, your business will become more agile, efficient, responsive and ultimately, more successful.

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Loan Scams: How To Protect Yourself From Loan Scams

My thoughts are that only if there is a grassroots movement by people affected by these scams to get rid of these unscrupulous marketers, will there be any chance of change.

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The current economic situation we’re experiencing in South Africa has created a strong appetite for credit. Often consumers need to borrow money out of desperation just to help them survive. It is here where scam artists and unscrupulous marketers prey on the public, signing them up for services they do not need, with monthly debit orders adding to their woes.

It’s a tactic that we’re seeing more of these days: A company advertises that they can help you secure a loan, even if you’re blacklisted. They charge you for this ‘service’ and at the same time sign you up for a bundle of monthly paid-for add-ons, hidden away in the Terms and Conditions (T&Cs).

They are doing this despite the fact that it is illegal to advertise loans to those who are blacklisted (according to the National Credit Act), and that a company cannot charge to facilitate a loan (according to National Credit Regulator [NCR]). To make matters worse, in 99% of cases, the applicant is turned down, and now has to continue paying for services that they were unaware of signing up for in the first place.

Related: The Definitive List Of South African Business Incubators For Start-Ups

This is criminal behaviour, but for some reason it does not get acted on by relevant authorities (such as the NCR) which should be protecting consumers. With an estimated one million South Africans being preyed upon like this annually, those who are tasked with watching over the consumer should not shake this responsibility. That’s not to say the marketing industry is blameless – far from it, but without a regulatory body, there’s very little to be done to act on these rogue companies. Even Google benefits from these loan scammers – just type in “bad credit loans” and see how many ads pop into the paid search results.

My advice would be for consumers to be vigilant in managing their financial affairs, especially when it comes to “too good to be believed” offers. Here are some pointers to help consumers protect themselves:

  • Never give your bank details to an unknown brand or marketing company that is not your own bank or insurance company.
  • ALWAYS read the Terms and Conditions before signing up for anything. Most of these scams work because the extras you sign up for are buried in the T&Cs, making them part of the contract.
  • Never agree to pay someone to find you a loan. The service provider is conducting an illegal act, since they cannot charge consumers for loan finding services according to the NCR.
  • As difficult as it can be, do not apply for loans if you are blacklisted as there is little chance you will qualify. These scams are run by people who feed off/take advantage of people’s desperation, so rather speak to your bank to get advice about your situation.
  • Sites such as Hellopeter are a great resource to check if companies are offering fraudulent services. It will only take a few minutes, but could save you years of problems.

As for what to do if you have fallen victim to these scams, complain in writing to the Credit Ombudsman (ombud@creditombud.org.za) as soon as possible. At this stage, we’ve lost faith in the NCR or the Consumer Protection Act stopping these types of scams. Rather get in touch with Carte Blanche, your local or national newspaper, and note it on Twitter and Facebook. My thoughts are that only if there is a grassroots movement by people affected by these scams to get rid of these unscrupulous marketers, will there be any chance of change.

Related: Seed Capital Funding For South African Start-Up Businesses

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