Put clinically, the lapse in efficiency can hurt your bottom line. Investing in software can reduce time spent on the tasks that irk you, and I take no offense if accounting is one of them. Streamlining your core business functions -- sales, human resources, accounting, payroll, project management -- gives you more time to work on other revenue-generating reinvestment activities.
Take a look at your administrative workload and identify the most laborious, tedious tasks. Rather than pouring thousands into repairs every year, upgrade to a more energy- and cost-efficient piece of equipment. Reinvesting your business profits is the best way to keep growing your company.
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Companies that are relatively new and still in stages of early growth are more likely to reinvest versus distribute income to shareholders or owners. One way to see that a company has committed to reinvestment versus cash distributions is to examine the company's various financial statements.
These show how much the company has paid, if any, in dividends. It also shows how much the company has accumulated in retained earnings. This is the balance of earned net income held for reinvestment or to meet other ongoing expense obligations of the business. A primary business reason to reinvest in growth is to increase revenue and profit.
By attracting new customers, adding new business locations or adding new products, your business can increase its number of revenue streams and hopefully generate increased profit from them. Adding new sources of income also helps insulate your business from the risks of operating with one primary source of income in the event that source dries up at some point. New or developing markets, or emerging customer segments, are ripe for the taking.
While small businesses especially might consider sticking to what they know and staying comfortable, the race for new capital and income streams is critical. If your competitors gain access to those new market opportunities because they invest in growth, they also get new funds to use for marketing, which increases demand, and further reinvestment in growth going forward.
From a shareholder perspective, a company that reinvests its income instead of pays dividends is in growth mode. While this means shareholders do not get cash distributions from their shares, they can feel more confident that the company wants to grow.
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