EVERY PROFIT NOT A PROFIT..!
Every business comes into existence with a view to exist for a longer period of time. The life of business is directly proportionate towards proper utilization of profit. Mere profit generation will not lead your business to sustainability. It is the proper utilization of the profit in the business reflects the sustainability of business.
"Primary aim of every business should be growth rather than just profit cultivation."
It's commonly misunderstood that profit making is the ultimate goal for business existence. It's interpreted as when profit is earned, business will proceed in bloom. But that is just a misconception as if a mirage. We shouldn't be happy with a mirage when the real oasis is just around the corner.
When a business begins to generate profits, investors are faced with two primary decisions. They can either distribute profits back to the investors or reinvest those profits back into the business to improve the company or expand operations.
REINVESTING: THE SMART STRATEGY
There are multiple uses of profits in business. Reinvesting is often the smart move. The first thing that comes to mind hearing the word "reinvest" is likely a financial reinvestment. Redirecting a portion of profits back into the business can help the establishment to grow and position itself for long-term success. Most start-ups need to reinvest heavily. This is because new businesses are not able to compete on the same level as the big guys.
When profits first start to trickle in, inexperienced small business owners may treat themselves to lavish rewards and loosen the belt a little too much instead of making their hard-earned money work for them. Business should always look to the future with long-term sustainability in mind. Reinvesting profits into business should be seen as "paying it forward" since you will reap the reward in future earnings. This is why we recommend taking your initial profits and using them to expand your product range, hire new staff or make other investments. Every reinvestment in your organization represents an opportunity to add an interest-free cash infusion to your balance sheet that will create lasting value for your business.
Distributing profits back into your company can result in a range of benefits. Allocating profits toward capital improvements can help keep expenses low in the long run. Plus, nothing shows that you have faith in your company than taking a pay cut to improve its long-term standing. Reinvesting helps keep the ownership of the business in your own hands. Financing capital projects and other expenses by selling shares to investors dilutes the ownership of the company, which means you will have less control over your own business.