Deciding when to spend…..or not

Jun 21, 2018 | Anne's Blog

You know what they say: it takes money to make money.

Sure — but when you run a business, there’s no end of purchases and expenses you could add; how do you decide whether it’s an expense you should incur?

If you’re really stumped deciding whether something is a need or a want for your business, work through these four questions before you pull out the money to cover the expense:

1. Will this acquisition directly contribute to either revenue generation OR cost reduction?

We can be tempted by expenses that are helpful, but tangential, to our core business. Like having an espresso machine in the office for clients. If you’re not a coffee shop, no coffee machine, no matter how expensive or inexpensive, is going to DIRECTLY increase revenue. However, if having an espresso machine in your salon saves you from spending $6 next door every time you offer coffee to clients, then there’s a clear cost savings you can attribute.

2. Does the acquisition need to happen right now?

How urgent is the need for this expense? Are you launching a service that will require access to a high-speed color printer? Is that new service selling well? Then now’s the time to buy. If you’re just toying with the idea or know it will be 6 to 8 months before you launch, then you have time to do more research, cost out alternatives, and make a smart decision when, and if, the time actually comes.

3. Can the cost be reduced?

Are you looking at the Cadillac-level of service or equipment when in truth a KIA will do? (No disrespect to KIA drivers! You’re still getting from point A to point B!)

Consider ways you might reduce the price: paying with cash, buying in bulk, buying used or refurbished (just remember to calculate life cycle cost, not just acquisition cost), sharing, renting on an as-needed basis… Even if you don’t find a workable cost-reduction, you may discover cost saving options for other business expenses!

4. Is there a less costly way to achieve the same result?

What’s an alternate solution? Would a new system eliminate the need for adding personnel? Can you reduce, reuse, recycle rather than buying new? Is there a process that would use less electricity or fewer materials? Even if the tweak only saves pennies, pennies quickly add up to dollars.

I’ve seen too many small-business owners spend money on things that don’t help them make money. They add expenses that don’t directly add revenue or increase profits. Or they buy when they don’t need to, or simply spend too much.

The great thing about working through these questions is that the process itself prompts you to slow down, take a breath and think through the decision, the solution, the price and the timing thoroughly.

Listen: if the purchase, profit and numbers side of running your business doesn’t come easily to you, you’re certainly not alone! I have an event coming soon designed for the small-business owner or entrepreneur who wants (more than anything) to make sure their business is profitable and growing well, without crazy stress and constant worry. You’ll find all the details at yourprofitmatters.com.