The idea of spending money to make money is a common one in business. For the most part, it’s an idea that you can rely on: businesses do need to invest if they are going to grow, and being too restrictive with spending can impede a business from reaching the heights of success it’s capable of.
However, the concept of spending money to make money can also be misused, predominantly because it’s often misunderstood. If you’re truly going to make the most of your business investments, you have to be sure that you’re savvy about business-related expenditure. Below are three rules that can help you differentiate between good and bad reasons to spend business money.
Rule #1 – Always meet a genuine need, not a want
If you’re not great at managing the IT side of your business, then finding more information out about managed services and spending in this area is a good idea. This is a genuine need that will have practical implications on your business. On the other hand, spending a small fortune on a logo designer isn’t necessarily a good use of funds. It’s nice and you might want it, but it’s ultimately going to have a relatively small return in terms of benefits for your business.
Rule #2 – Never spend until you’ve completed your to-do list
Entrepreneurs are dreamers; they think big, plan for the future, and are always coming up with new plans for the future. This is generally a good thing, but it can quickly turn sour if you are always leaping ahead of yourself to spend– for example, spending money on marketing materials when your product is still in the development phase. Any spending should be carefully measured to deliver benefits that help advance your business to its next step, not five steps after the next step.
Rule #3 – Ignore “good deals”
If you find a good deal, all rational thought can go out of the window. As a species, we’re mentally wired to respond to the idea of a bargain– so if it looks like your business could get a great deal, you’re more likely to jump on it and experience a rush of satisfaction for doing so. This is a dangerous way to spend money; rather than taking the time to consider the purchase, you’re jumping in because your brain is screaming at you to take advantage of the offer. Remember: it’s only ever a good deal if you truly need it, can’t get it cheaper anywhere else, and have the funds available to finance the deal without needing to borrow. Slow and methodical thinking tends to win the day in business.
Rule #4 – Especially ignore “limited offer/time” deals
These deals are offered purely to encourage people to make a decision now— they are rarely truly limited. Avoid the hard sell and always walk away if you’re told an opportunity is only going to be available for a short period; the seller is trying to trick your brain into spending without doing your due research.
While spending money to make money has a place in your entrepreneurial mindset, adhering to this tactic is not always the best idea for your business finances. Stick to the rules above and you won’t go far wrong.