Aashish Sharma — May 26, 2017 The concept of maximizing profits is one that every entrepreneur should be well familiar with. Especially in your infantry stage of your business, the need to pay yourself can largely affect your capacity to use some money for reinvestment from your business. An investor who is used to working with stocks can also simultaneously reinvest their money in other to maximize profit.
One of the main stakes of an entrepreneur is to grow his business. But what is meant by “growing up”? A company develops by increasing its workforce, diversifying its activity, extending its means of distribution of its products or services … The entrepreneur must question himself, question his business model to know how to develop his business. Still, we must ask ourselves the right questions and define the right actions to implement.
But how exactly should you go about maximizing profit through proper reinvestment? To a large extent, it depends on the needs of each business individually, but below are the Tips to help Maximize Profit Through Proper Reinvestment.
Settle Your Debts
If your business is making profits truly and you have the intelligence to allocate those profits where you please, your primary focus should be paying off your debts. This option may not be the most exciting on the table. Because, unlike some other tips, it doesn’t bring a visible impact on the business.
However, settling your debts aids your business to be independent financially, which gives you the flexibility needed to help your business grow and change successfully.
Maximize Inventory or Service Capability
Maximizing inventory or service capability is always an amazing idea to consider. This tip depends on the type of your business. If you selling products, maximizing your inventory means putting more money in manufacturing additional products or making the production of your products faster so that to more products will be available to sell. If you provide a service, you should invest on the essential things designed to help maximize your business ability to provide that service to a number of customers.
Invest Externally
The concept of reinvesting profits externally may not be necessary enough to correspond with the term “reinvestment,” but it only due to terminology. Basically, the idea is a normal investment practice that is, putting money behind a given resource, stock and so on etc. in the hope of greater profit on behalf of the business, instead of an individual.
Generally, there is a risk in building an investment case with a business capital, but this strategy is a creative method for making a money for your business
Your own choice and the current market depends on what to invest on. But as a business owner, you should have creative strategies to maximize profit through proper reinvestment by diversifying your reinvestment choices.
Hire A CFO
This tip should be approached with utmost prudence. However, if the rest of this article is relatively complex to understand, and the idea of managing finances seems hard to you as a business owner, the best option is to put these issues in the hands of a trusted and paid staff. That is primarily a CFOs job. This position might not seem necessary or exactly defined in a startup business, but you should consider it in the right situation.
This strategy for maximizing profit through proper reinvestment is devised to streamline future financial decisions and make the decision easier. You might see remarkable growth in the attention you can give to other aspects of your business that you’re good at once there is another individual managing your money.
Brand Expansion
In today’s business world, marketing is done via the internet and various social media outlets. Businesses nowadays, create an entire division in their company and hire staffs for marketing campaigns, brand exposure and to engage customers with new and traditional media.
This simply mean business expands their brands to make it easier to find the business through growing visibility via likes and mentions on Facebook, Twitter, etc. To a lot of business owners, it may sound like jargons. but that’s where reinvestment comes in. hiring an individual with brand building experience will not only help you improve your marketing campaign, but will give you the knowledge on how the process is done.
Price Action
If the investment was a game, the way you’d win is to purchase a stock at a lower price and sell it later on at a higher price.
In order to maximize profit through proper investment, there are two strategies to help you achieve it. The first strategy is described as value investing. Stocks are just like products you buy daily. It goes on sale from time to time and value investors hold up for a lower sale price. This makes it easier to maximize profit because stocks that are sold at a lower price or are undervalued have more opportunity to increase in value.
The second strategy is momentum trading. Some business owners who want to maximize profit by reinvestment, admits that the perfect time to purchase a stock is when its value continues to increase. The issue with momentum trading is that it tends to work better for individuals who are looking to maximize profit by reinvestment for a short term. However, we want to maximize profit for a long term. if you hold your stock for more years, the better you maximize profit.
Dividend
In the stock trading world, maximizing profits by investing in a dividend might be considered boring, however, for a long time investor. dividends could later become an income source. Dividends offer investors two advantages that help their money work for them in more than one way. Firstly, it helps to maximize profit by giving investors stable income. Secondly, it lowers the cost basis for the stock an investor buys.
Covered Call
Covered calls are a little more complex. If you don’t feel convinced with this type of strategy, purchasing a stock and collecting the dividend as it soars higher will still be an exciting way of maximizing profits. Before we sell a covered call, it is necessary for us to make two important decisions:
Determine what the strike price is
Determine the number of months into the future we want our contract to expire?
- Strike Price: A covered call is a type contract strategy that gives an individual of the contract the privilege to buy up to 100 shares if it is at or higher than the strike price. Supposedly, if you don’t want your shares collected from you, albeit you may change your decision in later years, so your strike price should to be high enough that your stock won’t rise higher than the strike price, but low enough that you can still get a healthy benefit for the risk you’re taking. This decision is difficult. If your stock is in a dip, you can probably sell an option with a strike price that isn’t much higher than your stock’s current price. If your stock value is in an increase, for the sake of security, contemplate waiting to sell the call, until you believe the uptrend has run its course, and the stock value has started decreasing. Recall that, when your stock increases in value, the value of your option decreases. This also adds the benefit of the covered call acting as a barrier
- Expiration Date: The more we move into the future in which you take your option, the more of a bonus you will be paid in advance, to sell your call, but this also means, your stock has to stay lesser than the strike price more times, and in other to avoid your stock being called away from you. You should contemplate going three months into the future before signing your first contract.
The covered call will maximize profit for you as soon as it is sold by you because the bonus that the buyer paid is transferred directly into your bank account. It will continue to maximize profit for you if the price of your stock comes down. As the price comes down, so does the bonus.
You can buy the contract back from the person who bought it earlier at any time, so if the bonus falls, you can buy it for less than the amount sold it. That maximizes your profit. On the contrary, if the stock increases above the strike price, you can buy the contract back for more than the price you sold it thereby, incurring a loss, but this saves you from having to abandon your 100 shares.
One of the best ways to use the covered call to maximize profit is the collection of the bonus at the beginning, and you can also buy the option back if it value increases or decreases, save this for harsh circumstances
For most investors, who wants to maximize profit by putting money in high-quality stocks for a very long time, while exploiting dividend income, is the best way to maximize profit in the market. Later, when you understand how to implement the covered call, you can increase your profit significantly. Although the stagnant income side of investing in stocks is not as exciting to watch, it is the most relevant for retail investors and as we can see, the numbers can add up really fast.
These tips and ideas might only be applicable to a large number of small businesses while providing strategic methods to maximizing profit through proper reinvestment with scarce resources early on.
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