Q4 is the most profitable time of year for many entrepreneurs. Here are 4 ways to reinvest cash into your business to prepare for 2023.
- One-third of 300 small-business owners said the fourth quarter was the most profitable time of year.
- The founders of Alleyoop, a personal-care brand, put 100% of holiday earnings back into their business.
One-third of the 300 small-business owners polled by the financial-tech firm Kabbage said the fourth quarter was the most profitable time of year. For some entrepreneurs, the surge in profits can provide extra cash that they can invest back into their companies.
"As an early-stage brand, 100% of what we make goes back into the company," said David Manshoory, the cofounder of the personal-care brand Alleyoop, which sells beauty, body, and skin-care products like bronzer, razors, and toners. Manshoory and his wife Leila launched the business in 2019. "We're seeing quarter-over-quarter growth, but Q4 is always the biggest quarter of the year."
The duo put everything they earn back into the business to fuel growth, he said. When determining where to reinvest your seasonal earnings, look at the most pressing issues and constantly analyze business functions, he suggests. For example, they focus on inventory, research and development, marketing, and team building.
"The growth stage of the business plays a significant role in how business owners reinvest their money," Jenny Shum, general manager of Chase Ink, told Insider via email. But being intentional with where and how much is reinvested is crucial in mitigating today's ongoing economic pressures, she added.
"Small business owners have had to reimagine the way they do business over the last three years," she said. "This year, business owners are investing heavily in technology to sustain their businesses, cut costs, and increase efficiencies in order to mitigate ongoing economic pressures."
Insider spoke with David Manshoory, Shum, and two other experts who shared four specific ways business owners can reinvest their profits from this year into the future of their companies.
Inventory doesn't refer to only what's on the shelves. It can also reflect what's going to be purchased and how it's going to be sent to customers, Manshoory said.
Business owners should first ask themselves: "What are our top sellers, how long are shipments taking, and what do we need to buy in larger quantities this time of year," he said.
With the cost of goods increasing recently, "business owners can curb the effects of inflation by investing in inventory and committing to purchasing products at current, known margins instead of allowing the market to keep those margins in flux," Shum said.
Additionally, it's important to watch your margins closely, Cynthia Franklin, director of NYU Stern School of Business's entrepreneurship department, told Insider via email. "Know which products and services are contributing most to your bottom line." Those are not necessarily the highest-priced items, Franklin added.
Meanwhile, some companies should consider boosting digital strategies and services after the holidays, said Tolithia Kornweibel, the chief revenue officer at the payroll, benefits, and support platform Gusto.
"A lot of the businesses that innovated during COVID-19 did so through the digital delivery of services, which have no constraints from a supply-chain perspective," she added. "All the signs would suggest that we're going to continue to live much more in a digital world."
2. Research and development
The first quarter after the holiday season is often the slowest period of the year for retail companies, which gives business owners time to get creative and plan longer-term objectives, Manshoory said. For example, money can be reinvested into improving product offerings, he said.
More established businesses should consider investing in research and development "because their goals revolve around diversifying or improving their product offerings and enhancing the customer experience," Shum said.
Research can help founders understand what their customers want, Franklin added.
"This research will enable you to better develop products that resonate, create targeted marketing campaigns with messages that hit all the right notes, and craft an appealing customer experience," Franklin told Insider.
Marketing is important all year, so business owners should reinvest in attracting customers, Franklin said.
"Plant seeds now so that customers are primed to shop with you not only the next holiday season but year-round," she said.
Manshoory's marketing efforts for Alleyoop are ever-changing and can be pivoted based on the season, he said. For example, the brand's messaging went from "on-the-go beauty" to "decluttering your routine" when COVID-19 hit.
Any seasonal or cultural changes should result in a marketing shift, so it's important to have money designated to those budgets, he said.
An efficient staff is crucial for company morale and consumer experience. Shop staff will connect better with customers if they are not overworked, a fully staffed warehouse will ensure orders are shipped to customers quickly, and an array of back-end employees is needed so customers feel heard online — both through digital interactions and marketing campaigns, Kornweibel said.
While recruiting is an area many business owners are focused on, hiring new staff members is not the only way to reinvest in the team, both Shum and Franklin agreed.
"If you can, carve out bonuses for them, no matter how modest," Franklin said. "The mere act of this gesture will go a long way building goodwill."
Along with reinvesting holiday sales into retaining the team, Shum also suggests business owners use cashback and credit card rewards to help subsidize employee bonuses, or turn rewards into gift cards and other benefits.
Holidays have the potential to bring pressure and stress to each of these departments of a business, but seasonal success can be used to rebuild each department to prepare for an even more successful new year, Manshoory said.
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