At what stage is a business profitable enough to reinvest into the company?

Contributing columnist, Kostas Chiotis

Reinvesting profits back into a company is a difficult by crucial step for companies who want to grow. Yet, reinvesting profits back into a business is important from day one.

Warren Buffett learned about the importance of reinvested profits at the ripe age of 18. While still in high school and hoping to make a few bucks, he and a pal invested $25 in a pinball machine. They installed the game in a barbershop. The pinball gig turned out to be quite successful, and the two made a nice profit. But, instead of spending his earnings on a cool car or new sneakers, Buffet and his friend reinvested the profits and bought more machines. In time, they had eight pinball machines in different shops.

When the two friends parted ways and sold the venture, Buffett accumulated $174,000 – that’s $1.4 million today. He used the money to buy stock and launch another business.

Warren Buffett is one of the most successful investors in the world and a business genius. Yet, there was nothing spectacular about his strategy to multiply his wealth. Building a successful business and wealth requires long-term thinking and the ability to overcome the desire for instant gratification.

We interviewed 11 successful online entrepreneurs. Learn their tips for success and how much they reinvest into their business. Their answers might surprise you. You’ll find out their capital reinvestment levels. 

Reinvesting Profits – How Much Should You Reinvest in Your Small Business?

Although it’s difficult to see your bank balance drop, there’s merit in reinvesting your profits. But, how much of your revenue should you put back into your business? And, where should the money go?

Although views vary, most successful entrepreneurs agree that you should aim to reinvest about half of your profits, especially in the first few years. If you put your revenue into your pocket and don’t redirect at least some of it back into your business, you’ll stagnate.

What’s wrong with earning a set amount of money every year, you might ask yourself. Most companies can’t survive in this overly competitive environment without investing in technology, people, and business improvements. At the pace the world is evolving today, a stagnant business is one small step from decline.

Where Should I Reinvest?

Deciding how to put your profits to work is just as important as determining how much to reinvest. You want to make sure that every reinvestment will set your company for future success.

• People: Your employees are your biggest asset. You can build a business as a one-person show but you can’t take it to the next level of success without the right people. Invest your revenue in hiring skilled professionals that will help you turn your vision into reality.
• Product: Just look at some of the most successful business around you. They are constantly tweaking and improving their products to keep up with the changing needs of their audience. Evaluate your current product and decide if it needs any improvements. Are your prospects happy without what you offer? Will they be more likely to buy your products if you add more features or change the design?
• Marketing: You could have the best product in the world and it would be for nothing if your target audience doesn’t know about it. The business world is crowded, with 100 million new businesses launching annually, according to GEM Global Report. 

Business-Building Tips from Online Entrepreneurs

To gain insight into how much of your revenue to reinvest into your business, we spoke with 11 successful online entrepreneurs. Here’s what they had to say about building an online business.

Todd Tresidder – Financial Mentor

What Is Your Online Business?

Teach how to become financially independent – provide free educational articles, calculators, books, courses, and coaching.

How Old Is Your Business?

18 Years.

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

Roughly 30%.

What Are Three of Your Major Business Expenses?

My virtual assistant who helps me with everything except tech, and my tech genius who keeps it all running. The third largest expense is my email service provider.

What Is Your Best Advice for Online Entrepreneurs?

Have a plan based on proven principles, take persistent action on that plan every day without fail, and correct and adjust your plan as you continue to learn through implementation.

Joseph Hogue, CFA – My Work from Home Money

What Is Your Online Business?

A diversified set of income sources from self-publishing to freelancing and websites. I get to make money talking about the things that interest me most and teaching people about debt, investing and making money online.

How Old Is Your Business?

I started freelancing in 2011 and started building my websites in 2014.

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

My target currently is $1,250 a month which ranges from 15% to 25% each month. That’s about $500 in basic expenses to keep the sites running and help make some tasks easier. The remaining $700+ is spent on marketing and special projects for growth each month.

What Are Three of Your Major Business Expenses?

I spend $200 a month in SEO and outreach tools that help me promote the websites and another $90 on social media tools that help me to schedule on sites like Facebook, Pinterest, and Twitter. I’m planning on hiring a VA soon that will be around $250 a month and will help me do more with social media and outreach.

What Is Your Best Advice for Online Entrepreneurs?

Don’t go after just one income source. Whether it’s affiliate sales, self-publishing, sponsored posts or consulting, few of the online income sources will pay all the bills or build fast enough to replace your 9-to-5 job. Learn how to make money from different income sources and what works best for you.

Holly Johnson – Club Thrifty

What Is Your Online Business?

We teach people to use their own paychecks to build a life they love.

How Old Is Your Business?

Six years.

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

We reinvest around $2,000 per month into advertising.

What Are Three of Your Major Business Expenses?

We pay for advertising, WordPress troubleshooting, and virtual assistant help.

What Is Your Best Advice for Online Entrepreneurs?

When it comes to online business ideas, try to think outside the box. One factor that has helped us achieve success is the way we don’t limit ourselves in terms of potential income sources. There are a zillion ways to make money online, but it’s up to you to find them.

Neal Frankle – Wealth Pilgrim

What Is Your Online Business?

We show people how to have no money worries no matter what.

How Old Is Your Business?

Nine years online. 28 years in financial services.

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

Twenty percent of our online business.

What Are Three of Your Major Business Expenses?

Tech expert, marketing expert, sales funnel expert.

What Is Your Best Advice for Online Entrepreneurs?

Don’t be afraid to hire people who can add real value. Don’t try to understand and excel at everything. Focus on your core skills and hire out everything else. Just be sure you hire the right person. The online industry is full of people with big promises. In my experience, only a few deliver.

Miranda Marquit – Miranda Marquit.com

What Is Your Online Business?

Provide content writing services for a variety of clients. I also run my own websites and podcasts.

How Old Is Your Business?

12 years (started in 2005.)

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

About 20%.

What Are Three of Your Major Business Expenses?

Virtual assistant, podcast producer, paying writers for one of my sites.

What Is Your Best Advice for Online Entrepreneurs?

Don’t do everything yourself. Recognize the tasks and activities that provide the biggest impact to your business. Focus on those and outsource everything else to competent people. It’s been amazing how much more I’ve been able to scale and earn now that I outsource a lot of mundane tasks.

David Waldrop, CFP – The Astute Advisor

What Is Your Online Business?

I write about a variety of personal finance and investment related topics to help everyday folks.

How Old Is Your Business?

Three years, started in January 2014.

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

Right now I spend about 2% of gross revenue. I expect this to double in 2017.

What Are Three of Your Major Business Expenses?

Tech expert, WordPress help, outreach.

What Is Your Best Advice for Online Entrepreneurs?

Get comfortable with being uncomfortable. Don’t feel like you need everything figured out before you start. Learn by doing. You will learn and grow if you’re not afraid to make mistakes.

Kirk Chisholm – Innovative Wealth

What Is Your Online Business?

I run a fee-only investment advisory firm. My website provides free educational information on topics about wealth management, investing, retirement, and more.

How Old Is Your Business?

18 years in financial services. Nine years with Innovative Advisory Group.

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

Approximately 30%.

What Are Three of Your Major Business Expenses?

Marketing, administration (labor), travel.

What Is Your Best Advice for Online Entrepreneurs?

Find someone who is where you want to be and model their activities. Get to know them and find out how you can get to where they are.

John Schneider & David Auten – Debt Free Guys

What Is Your Online Business?

Speakers, writers, and podcast hosts (Queer Money) about LGBT finance. We help businesses and the LGBT community talk about the financial nuances of the LGBT community.

How Old Is Your Business?

Four years.

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

About 40%. Much of that is making up for website errors/SEO errors we made when we started. That should drop as those errors become history.

What Are Three of Your Major Business Expenses?

1) Marketing (primarily FB ads), 2) WordPress maintenance and support, 3) business maintenance (Aweber, BoardBooster, MeetEdgar, etc.).

What Is Your Best Advice for Online Entrepreneurs?

Quickly figure out what you’re good at doing and contract out or defer what you’re not good at doing to someone better. It’s important to understand everything about your business, but you can’t be good at everything. Trying to become an expert in everything will waste time.

ESI Money – ESI Money

What Is Your Online Business?

Personal finance blog.

How Old Is Your Business?

A year and a half.

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

75%.

What Are Three of Your Major Business Expenses?

Marketing, email list management, tech support.

What Is Your Best Advice for Online Entrepreneurs?

Make at least a bit of progress every day. Small gains over a long period add up!

Jim Wang – Wallet Hacks

What Is Your Online Business?

A personal finance blog that gives people strategies and tactics to get ahead financially and in life.

How Old Is Your Business?

Two years old.

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

50%.

What Are Three of Your Major Business Expenses?

Advertising/marketing, content production, tools.

What Is Your Best Advice for Online Entrepreneurs?

Separate your business income from your personal income – it’s easy to see a dollar you earn from your business as your own. If you do that, it becomes much harder to invest back into your business because you can either invest the money or spend it on yourself and your family. Treat your business as a separate entity and invest as much as you can afford!

Bonus; How to Earn Money Online – Jobs for Seniors and Retirees

JC Matthews – Simply Insurance

What Is Your Online Business?

Simplest and fastest way to buy insurance online and insurance education blog.

How Old Is Your Business?

I was a licensed life and health agent for over nine years. The online business is six months old.

What Percentage of Your Gross Revenue Do You Reinvest Back into the Business?

Approximately 50% at the moment.

What Are Three of Your Major Business Expenses?

Licensing, Marketing, Phone Services.

What Is Your Best Advice for Online Entrepreneurs?

Stay focused. There are so many ways to build a business online. Focus on one way, get that way working and then branch out. Do as many small tests as possible and only go all in once you have determined what actually works.

Reinvesting Profits in Your Small Business – Takeaway

Kyle Taylor, the wildly successful founder of The Penny Hoarder, wrote in a recent Entrepreneur.com article that he reinvests 50% back into his business every year. Highlighting the axiom that you need to spend money to make money. Actually, reinvesting in your business is one of the best ways to put your business on the fast track to success. There’s no rule regarding how much you should put back into your business, that’s a personal decision. What matters, is to identify the elements that can help your business grow, and invest in them. It might be online marketing, your employees or personal growth.

Not all of your investment will be successful. You could spend thousands of dollars on a website design that you end up hating. You’ll probably hire the wrong people who don’t get your business vision. But, that’s okay. Each of these experiences will help you understand how to run a business and what you need to do to grow it to the next level of success.

This is a sponsored post.

Kostas Chiotis is an economist, online marketer, entrepreneur, and owner of Finance Blog Zone , Iris Signals and a few more websites and blogs.

The post Reinvesting Profits in Your Small Business appeared first on Barbara Friedberg.

This content was originally published here.