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.
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.