The decision of whether to reinvest all or take profit after a successful business is something some people get stuck with and at the end of the day, not all of them make the right decision.
Profit is the extra you have after subtracting every cost you have invested from what you have as a return.
I became interested in writing this article after getting into a conversation with some friends on a WhatsApp group. A guy made a huge return from gambling and he was contemplating about returning all for a bigger reward or just taking his profit and reinvesting only his capital.
Some set of people chooses that he reinvests all while some advised him to take profit. Everyone is right, the two options are okay but a lot of things have to be put into consideration and that was where I came in.
Looking at the option of taking profit, is a good thing to do. People who take out their profit sometimes usually end up with regret when the reinvested capital brings another profit. They are always like if I had known, I would have reinvested all. The regret comes up because things went well and they would have thought otherwise if things had gone wrong with reinvesting all.
Reinvesting both capital and profit is also a good option, who doesn't want more money? We all want more money but what if the unexpected happens?
It is all well and fine when things go as planned but losing it all as a result of a failed business can be very disastrous. Whether you choose to reinvest or take profit, a few things must be put into consideration before making that decision.
The risk that comes with reinvesting all is different, it might be high for some and it would be the opposite for others.
In the case of the gambler, there is a huge risk in putting back his profit because he can't be too sure of what the end of his investment would be.
A market woman who sells food items wouldn't worry much about risk except they are perishable items that have to be sold off as soon as possible.
The risk is different for both of them is different, the food items seller is sure about selling her commodities even though it would take a longer time. She will make her profit especially with the inflation happening globally but a gambler can lose it all with one single wrong decision. Considering the risk is one of the most important things to do when deciding whether to reinvest all or keep the profit.
The source of your capital matters a lot, I do not support taking a loan to start a business but expanding your business with a loan is not a bad idea as long as you have a strong repayment plan.
Reinvesting all is not a strong option for someone who took a loan as capital, you can't be too sure of a business success especially when it is not a physical business. It is important that we pay back loans as soon as possible and reinvesting only your profit will do you a lot of good. It would look like starting all over again but you are not indebted to anyone and that's one thing to be happy about.
It is better to go down a few steps on the ladder than fall off completely, it wouldn't make sense to lose it all if things do not go as planned, and still paying a loan when the business doesn't even exist will be a bigger problem.
A few months before Covid, I started selling leather footwear. I got my capital from a loan app and it puts lots of pressure on me.
I sold my first batch of footwear successfully and made about 40% profit. I paid back my loan first even though it wasn't due and managed the profit to sustain the business.
It wasn't easy going to and fro the market frequently due to insufficient capital but I was glad I wasn't indebted to anyone. I couldn't sell the last stock I got two weeks before the lockdown and I had them for quite a long time. Not paying back my loan would have accumulated overdue interest because there was no way I will pay it back.
The source of our capital matters a lot and must be put into consideration, if it belongs to you then the consequences of reinvesting all will be minimal if things go wrong but reinvesting all even when the calculated success rate of the business is 50℅ can be dangerous if the capital doesn't belong to you.
Anything could happen and whether good or bad, we can't be certain.
Everything about life is a risk but some risks are not worth or wise to take. There is no point in putting yourself in a financial crisis with whether to reinvest all or take profit, we all can make a good decision after the thinking carefully.
These aren't the only available options but we focus more on reinvesting all or taking profit than the others.
If all the capital and profit belong to you, keeping some of the profit is okay. You can keep half and reinvest the other half with the capital if you have calculated the risk.
I am not a financial advisor but this is just what I feel about reinvesting all or keeping the profit. I stand to be corrected and please kindly share your thoughts about the topic.
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