Bibliography
1. Hoover, Jeremy. 2004. 3 Ways To Re-Invest In Your Business For Maximum Profits. On the Internet at http://www.mlmknowhow.com/articles/managing/reinvest.htm.
Student 3: One of the reasons to reinvest is because it will make you look professional (http://www.megabizflakes.com/top-3-reasons-re-invest-business) This is not as silly as it seems. The market and success on the market is quite often based on the way the clients and partners perceive you. If this is a company that reinvests most or all of its profits, then this is a company that is likely to have greater credibility on the market than a company that pays out more dividends. The former shows more commitment to long-term growth and to sustainable development, while the latter tends to look more like an economic entity out there to make a quick buck. Dividends are important, but the company should devote time to perceptions.
Some of the reinvestment will also produce higher skilled employees. This applies when the reinvested profits go towards training seminars, towards other motivational instruments, including higher pay and better working conditions. This will also increase and positively affect employee retention, as fewer employees are likely to search for a different job under these conditions. This will also create new ideas, to the company's benefit (Ven, 2010), maximizing the way this can be exploited on the open market in terms of innovation and creativity.
Ven. 2010. How To Reinvest Your Online Business Knowledge ? | Money & Knowledge. On the Internet at http://emoneymakingonline.com/2010/12/21/how-to-reinvest/. Last retrieved on September 30, 2011
2. http://www.megabizflakes.com/top-3-reasons-re-invest-business
Student 4: Reinvesting the profit also makes sense from a financial perspective. Reinvesting the profit means that it will not be taxed or rather that it will be taxed less. This means that the company will be able to enjoy both the operational benefits of reinvesting the profit (including further developing the business), but also saving an expense, through avoiding the taxation of its profits. This should also make sense from a shareholders' point-of-view, because the value of the company they have a stake in will increase, while they will not be taxed on dividends, since they will not be receiving them.
It is never easy to determine how much to reinvest, but the general understanding is that the first years of the business should be those years where all or most of the profit is reinvested. It is more important during that phase to build the market share, retrieve new client accounts and invest in research and development. Following this initial phase, the decision of how much of the profit to reinvest should remain with the shareholders, who own the company and who are the most likely to best decide how to spend their money/profits.
