RE-INVEST PROFITS FOR BUSINESS GROWTH, SMES URGED

By Lumbiwe Mwanza

ZAMBIA needs as many citizens to venture into various businesses but they need to grow out of being SMEs into being large and medium enterprises and this requires a disciplined strategy of reinvesting profits, economist Munyumba Mutale has said.

Mr. Mutale told The Scoop that business reinvestment, which was funnelling a certain amount of profits back into the business, was an effective way to increase the value of the business and enable it to invest in its future growth.

He said that reinvesting profits into a business carried many potential benefits which included company growth as there would be increased customer base and, in turn, profits that could be used to keep building a business from SMEs to large or medium enterprises.

“When it comes to SMEs, there is one thing that is seriously taken into consideration and that is the need to grow. A business needs to grow and so, SMEs need to grow by finding new customers, serving those customers, generating an income from those new customers and ploughing that profit back into the business so that it can grow. That is how a country’s economy grows when SMEs grow out of being SMEs into large or medium enterprises simply through reinvesting profits.

“With money going in and out of a business, it is not always easy to see whether it’s making money. Calculating profit helps give some clarity. Also one needs to know what figures are being worked on before considering any reinvestment,” Mr. Mutale said.

He said that smart reinvestment of business funds could be the deciding factor on whether a business succeeded, stumbles, or shuts its doors.

He explained that if an enterprise was making profits, it could reinvest them to further improve profitability, productivity, or efficiency and improve balance sheet strength.

He said that Zambian businesses, especially start-ups, needed to ensure that profits were well managed and reinvested for growth without having to go public or take on new debt.

He said that reinvesting profits back into the business allowed a business to finance new projects and expansion.

“In this country, we are constantly looking for investors or funders of SMEs because we are not promoting the reinvestment of profits. Using the same business profits to grow a business so that we do not have SMEs in perpetuity, they need to grow into medium and large enterprises that can adequately contribute to national development,” he added.