Business development · 18 January 2017

Revenue or profit: Line your pockets or grow your business?

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It could suit you to keep your business ticking over smoothly, but you may have your heart set on bigger things

When your small business starts making money, you can either choose to take revenue or profit. Will you take the money or re-invest it back in to your business?

However, you need to be realistic about how much money is needed so you don’t sink your revenue into a black hole and end up with unfinished projects.

As with any business, it is likely that some portion of your revenues will need to go towards general maintenance.

Then, as the money begins to roll in, you can decide between revenue or profit – pay the minimum and build your nest egg or actively grow your business in the hope of increased profits late down the line.

If you started your business as a lifestyle choice – to spend more time with your family, be your own boss and keep your bank account ticking over – investing all your time and resources into growth may not be the best option for you.

On the other hand, if your business is ambitious and you’re keen to take it to the next level, re-investing revenue can be a good way to grow at a steady pace. You can re-invest the money to help expand your reach, grow your product or services offering, work on research and development projects, hire new staff and so on.


Office and premises

One thing worth considering if you have an online business that is beginning to gain traction is a bricks and mortar store.

Don’t make the mistake of thinking that in the new digital world a physical store is redundant – according to a recent report by British Land and Verdict, 89 per cent of sales in the UK touch a physical store in some way.

Retailers that can offer an omni-channel experience are more likely to perform well as many consumers like to combine physical stores and websites in their pursuit of goods. For example, click and collect spend is set to double by 2021.

In addition, stores offer a touch point for consumers, which improves brand awareness, customer service and trust. Many customers will browse a store in person, and make a purchase later online – thus a store can contribute to online sales as well.

Ben Dimson, head of retail business development for British Land, said: “Even online pure-plays are dipping their toe into the world of physical, taking pop-up space or temporary units. In doing so, they benefit from the ‘halo effect’ that stores offer – generating online sales and strengthening customer relationships.”

 

Expanding your reach

Another way to invest in yourself is to explore ways to expand your reach and find new customers.

This can mean an investment in marketing practices, such as taking your business to trade shows and exhibitions, or finding ways to export overseas and reach whole new markets.

Getting a stand at an exhibition or trade show, going on trade missions overseas or leasing a warehouse to ship your goods around the world can all be very costly – but the potential pay-off can be huge.

Lindsey Fish, founder of Mums Enterprise, a company that organises family-friendly exhibitions to help mums in business, acknowledges that the more women they can attract to events, the more revenue can be generated through exhibitors and sponsors.

“We intend to take our events all across the UK and in order to do that we need to keep pushing ourselves and increasing the number of events we organise each year. The only way to do that is by re-investing the business profits back into the business which will allow us to reach many more mums,” she said.


Personal development and staff training

As your business grows, it is likely that you will be in greater need of a skilled workforce.

The reasons for investing in training are twofold. Firstly, you’ll end up with more skilled people working to further your business; and secondly, you’ll have more motivated staff who are more likely to stay with you, decreasing staff turnover costs.

According to a recent report by Deloitte, 71 per cent of millennials in the UK expect to have left their current job by 2020. Deloitte suggested that this lack of loyalty might be a sign of neglect, as globally 63 per cent claim that their leadership skills are not being fully developed.

As startups and small businesses tend to attract a high proportion of younger workers, it may be that your business can invest a relatively small amount on training and receive a significant return on investment with more skilled, and more loyal, staff.


Ambition vs lifestyle

It boils down to this – why did you start your business in the first place? If your business is earning you a nice little wage and ticking over smoothly, you might find it suits your lifestyle down to the ground.

If you have your heart set on bigger things and our business have an ambitious reach, consider how you can re-invest your revenues back in to help it grow. Be sure-footed, plan ahead, and above all, grow at a pace that is right for your business.

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ABOUT THE EXPERT

Letitia Booty is a special projects journalist for Business Advice. She has a BA in English Literature from the University of East Anglia, and since graduating she has written for a variety of trade titles. Most recently, she was a reporter at SME magazine.

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