GUEST POST - While the economic climate in Africa and similar emerging economies has been genuinely depressed in the wake of the coronavirus and subsequent lockdowns, there are some markets that continue to perform better than others.

Even for those that have seen their ventures struggle through 2020 and beyond, it’s arguable that entrepreneurs should still consider investing in expanding the business through the reinvestment of profits.

This certainly helps to negate the threat of mounting debt and rising interest payments for business owners, without forcing them to compromise on their short-term growth potential. 

But what’s the best way in reinvesting your company profits in the current climate?

1. Marketing and Advertising 

There’s no doubt that marketing and advertising represents significant business in Africa’s burgeoning economy, with this currently estimated to be worth 30.4 billion South African rand (or around $2.05 billion).

Such sectors also represent excellent value for money from a reinvestment perspective, as they allow you to target new or existing currencies with a view to boosting sales conversions and increasing turnover incrementally.

Make no mistake; even the biggest international firms across a wide range of industries reinvest in this manner, with the market leading forex broker Tickmill having utilised this strategy to enhance its technology stack and reach new audiences across the globe (including Africa).

2. Recruitment 

If your business has reached the stage where it needs to scale in line with consumer demand, you may need to invest in recruitment and a number of new hires.

This can be challenging, of course, as it’s considerably more cost-effective to retain existing talent than recruit new employees.

So, we’d recommend distributing your recruitment spend across both new hires and retaining existing staff members, so that you can optimise savings over time while ensuring that your workforce has the skills and resources to fulfill real-time demand.

3. Creating a Cash Buffer or Contingency

If the last 18 months have taught us anything, it’s that periods of economic tumult and uncertainty can sound the death-knell for unprepared businesses or those that exist in certain marketplaces.

So, part of your reinvestment could see the cultivation of a sizable cash buffer or contingency fund, with a view to creating a financial safety net that enables you to consolidate your venture through difficult periods.

This may also help to cope with simple cash flow issues, which are particularly damaging to new ventures in the infancy.

4. Capital Improvements

Finally, reinvesting SME profits can help with the acquisition of new infrastructure and tangible assets or equipment, which add value to your business’s balance sheet and creates an underlying sense of wealth and security.

Not only is this a wise move for small and medium-sized firms, but it’s also an investment that’s often long overdue by the time entrepreneurs take the plunge.

A capital investment can also see you switch from one manufacturer to another, in instances where you need to improve the quality of your products and apply a higher price premium.

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