The Do’s and Don’ts of Early Profit Spending

The following is a guest post, courtesy of Danielle Tate, author of Elegant Entrepreneur: The Female Founder’s Guide to Starting & Growing Your First Company.

As you make the transition from in-the-red to in-the-black take a moment to congratulate yourself. You’ve done it! The company you built from an idea is now turning a profit. How and where you spend those hard-earned dollars will fuel your business’s growth or speed its failure.

While giving yourself a raise and a vacation may be the first things that come to mind as you begin to see dollar signs, the best way to determine where to invest profits is to pinpoint what is currently making your company profitable as well as what is costing you money.

Investing in stellar talent is an excellent way to use some of your profits. Think about the biggest opportunity within your business. If you scout and hire a key employee to pursue that opportunity, they will increase the profit-generating side of your company and eventually cover their salary. Conversely, rashly hiring a slew of employees with undefined roles will create a payroll that consumes your profits and a team that monopolizes your time needing management.

Businesswoman - Benjamin Child

Technology or tools that you couldn’t afford as a startup may now be within budget. Again, think about what one thing would most benefit your company and either save money or make money. Is there a technology that would increase productivity and eliminate a source of friction in your business? Do your homework and talk to other entrepreneurs about the technology and tools they are using. Most will give you honest answers that will help you find the exact thing you are searching for and could save you misspending thousands of dollars.

Marketing is another area to explore for investment. Depending on your product or service, engaging the help of an expert could help boost your brand awareness and increase sales. Understanding your customers, what they want, and where they look for information will help you select the most attractive outlets to spend your marketing money on.

Leasing more office space is an alluring way to spend your profits, but is very difficult to forecast how quickly your team will grow and what your needs will be in the coming years. Committing to a 5 or 10 year lease for a high-end office constrains you to a specific city and number of employees. If you’re an early-stage company consider reorganizing your current space or rotating staff work-from-home schedules to hedge your bets until you’re more certain of your future.

As appealing as a bigger salary or new car might seem, they are not the best use of your early profits. Instead, of spending all of your early profits, save a percentage. Just like people need a rainy day emergency fund, companies, especially startups, do too. Having money in the bank will help you sleep better at night and solve problems as they arise in your business.

Do find a way to commemorate your first profitable month. Whether you host a company happy hour, treat yourself to a weekend away, or buy yourself a token item, it is important to celebrate your achievement. Very few people have the moxy to start a company, and fewer still make a profit. When you look back years from now, hopefully you will remember your first profits and how you used them wisely to continue building your business.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

4 Comments

  1. A couple days ago thoughts bubbled up again that had been mostly dormant now for a couple years. I’ve wanted to build some kind of company since I freelanced computer work years ago. I have programming skills, electrical skills, physics degree, people skills are OK but could be better. Just never landed on an idea that I liked enough. I’m an Engineer so I don’t want to abandon my safety net. Whatever I do, it needs to be something I can build quietly like a web program. I was thinking about my salary in that it’s decent income to most on one hand and it’s pretty low for what I do and in general on the other. Plus people make a lot of money when they strike the right spot. I don’t need millions but I just always feel like If I didn’t have to worry about sustaining my little life with food and my tiny house and old car. If all of that was taken care of I could actually do something good and important for society. So the last couple days I was trying to think of something I could do that would be both good for people, something important to me and something I could do while still making a living as an engineer.

    I wonder how many smart capable people are seemingly stuck in the same trap as me just trying to make enough money for their basic expenses and don’t have enough time or money to do something that feels actually important?
    I’m still young at 29 now, if I’m lucky I’ll figure it out and maybe be able to use this advice someday 🙂

    • As always, great commentary, my friend. I definitely understand where you’re coming from with respect to abandoning the safety net. I’ve had those thoughts and conversations myself in the past. It’s absolutely tough to know when enough is enough, when to take a chance, when to settle and be content, and how to find the right balance. At this point (i.e. age, income, marital status, home, etc.) in my own life, I’ve definitely settled into a safety net. However, I don’t feel trapped. Based on all the factors that led me here (e.g. divorce, debt, early career, etc.), I’m quite content.

      “I wonder how many smart capable people are seemingly stuck in the same trap as me just trying to make enough money for their basic expenses and don’t have enough time or money to do something that feels actually important.” I suspect that most – the smart and capable and the not so smart and barely capable – feel trapped. I further suspect the feelings of being trapped, or spinning the wheels fruitlessly, is 30 – 40 years in the making. People are spending more to go to college and too many are employed in jobs that are not commensurate with their education and adding insult to injury, face a difficult time paying back the loans they took out to get the education.

      Americans are working harder and are more productive, but have very little to show for it. As noted by Pew, ” … after adjusting for inflation, today’s average hourly wage has just about the same purchasing power as it did in 1979, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms the average wage peaked more than 40 years ago.”

      http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/

  2. I can’t wait until I am in this position!

    • Indeed. Glad you enjoyed the post and thanks for stopping by.

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