Profit Reinvestment 101

You have just made your first million. You are super excited. Touching a million in profits is because of your hard work and resolve to build your business. Irrespective of the type of business you are running, that first million is very special. It’s your first milestone on the path of wealth acquisition. Post that wealth kind of becomes a norm. The usual way to acquire wealth becomes building a bigger business. However, at this time you should also think about saving and investing.

Profit Reinvestment

Profit Reinvestment photo by @morbokat

A lot of businesses re-invest the profits in their own business, which is crucial for growth. However, as an entrepreneur, it would be smart to explore other options outside your own business. The key is diversification.

Set aside a section of your profits for investing in other businesses. We are not talking about becoming a VC yet. There are a lot of small businesses which hold good potential. For example, if running a specialty restaurant is a good idea in a particular location and somebody is looking for an investor, be that investor. Be that partner who would pool in money for starting up a restaurant. Generally, an individual doesn’t require a lot of money who is thinking of starting up a small restaurant. Lend a few thousands in the business and as a partner insure 5-10% of the profits for yourself on a yearly basis. Similarly, if you are investing even small amounts of $10,000 in 5 businesses, you not only increase the return on the invested money, but also fulfill your social passion for supporting other’s growth.

Buy stocks with a set amount of money of the companies who will be functional for a long time. Companies like Google, Tesla, Facebook and others are going to exist for a long time. As per recent forecast, Google is constantly innovating and is a must own tech stock. It is projected to grow at the rate of 20% every year. With this growth, its stock price could go way beyond $678.11 and even trade in 2K range in next 5-10 years. The prospect of your tripled profits should surely excite you. Warren Buffett has often said that for a few companies you should just buy the stock and let it sit in your account in long run. It is a serious wealth builder.

Invest in real estate. Property acquisition is a huge money maker in long run. Buy property in developing economies like China and India. These markets are only going to grow hotter. 10 years down the line your property bought for $10,000 would be worth more than 5 million with the growth rate of 10-20% a year as touted by various financial news reports. This is a way to build assets. If later unfortunately your business goes bust or you face financial woes, you can liquidate your assets and finance yourself. It eradicates the need of taking a debt and giving more people control over your business.

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