As the old adage goes, “you need to spend money to make money.” But how do you know if you’re making the right decisions with your business spending? 

Understanding expenses vs. investments is key. It’s important to be intentional about your business to keep your expenses from spinning out of control, but it’s also necessary to know when your business needs an infusion of capital to make meaningful strides forward, such as:

• Hiring new team members

• Buying new equipment

• Upgrading technology

• Adding new offerings

• Launching a new product

• Expanding your marketing efforts

Investing in your business requires money. As a business owner, you need to be able to identify whether or not your spending will bring a return, or if it’s simply a cost of doing business that you won’t recoup. 

Expense vs. Investment – How to Know the Difference

So how do you identify the difference between an expense vs. an investment? It’s relatively simple. Expenses drain your resources while investments eventually generate a return on the money you spend. 

There are always costs associated with doing business. Overhead and operating costs are included in the expenses bucket. Rent and utilities for your office space, equipment for your team to do their jobs, payroll, insurance, materials and labor to produce a product — all fall into the expenses category. If you don’t pay for these expenses, your business doesn’t run.

An investment, on the other hand, is something that will improve the product or services you offer and increase revenue. You invest in your business to promote its well-being and ultimately its growth. Putting money and time into your team, technology, marketing, and product development are all examples of investing in your business. 

3 Questions to Gain Clarity Around Your Business Spending

Getting a second set of eyes on your plan as you move forward can be helpful. For example, a business coach can help you confirm that you’re making a sound decision before you make a big investment. (Plus, hiring a business coach to keep you on track can be a great investment in and of itself!)

If you’re considering making an investment in your business, there are a few questions you can ask yourself to make sure you’re making the right move:

1. Is this a want, or a need?

2. Can I afford this investment right now?

3. Does this investment support my vision for my business?

1. Is This a Want, or a Need?

Whenever you have a big financial decision to make, it’s important to be clear and honest with yourself about what your motivations are and what you’re trying to achieve. Is the investment you’re considering going to move your business forward, or is it something you simply want?

Let’s say, for instance, that you’ve been in the same office since you started your real estate firm five years ago and the space is starting to feel a little stale. You’ve expanded from a one-person show to a team of five and your agents are on fire. 

Recently, an ad caught your attention for an empty commercial space smack dab in the middle of downtown and you’re considering leasing it. Moving your operation to greener pastures could be great for business, but the rent is 3x what you’re currently paying for your workspace off the beaten path. 

So what do you do? Well, let’s go back to your motivations. Is this shiny object syndrome, or possibly even boredom? Or is the visibility offered by the new space going to generate enough new business to justify the increased cost (and possibly exceed it)? Realistically estimating the return on your investment will determine if the new office space is a want or a need.

2. Can I Afford This Investment Right Now?

If you’ve decided to invest in your business, you need to create a solid plan. If, for instance, you want to expand your product line, take the time necessary to nail down exactly what it’s going to cost you to do so effectively. Materials, labor, fulfillment, and marketing will all cost you. So what exactly will it cost you and can you afford to make the investment at this moment?

If the answer is no, then you’ll need to save the capital for expansion from current revenue or borrow money. Write up a timeline for how long it will take you to save or secure funds and start working toward your goal. Rarely do businesses have enough money on hand to make a big investment, so looking ahead and following a plan is critical to help you get there.

3. Does This Investment Support My Vision for My Business?

Businesses are ever-evolving. What you envisioned for your business when you started probably isn’t what you envision today. Maybe you don’t know exactly what you want your business to become. And that’s okay! Your vision will likely grow and expand every time your business reaches a new level or milestone. 

But it does help to have the next goal in mind. Maybe it’s a two-year or five-year plan for where you want your business to be. For example, you want to triple your revenue by 2025, or you’d like to expand your business into another state with three additional locations. 

Whatever your vision entails, you can use this vision as a way to decide whether or not to make a particular investment in your business. Maybe you decide you’re happy with the size of your business exactly as it is. If growth isn’t part of your current vision, then don’t pursue it. Investing in the systems you currently have in place or strengthening your team to fine-tune what you’re already doing can be worth the time and money. 

Why Investing in Your Business is Important

Business owners should always be conscious of how they can invest in their business if they want to grow. Even if now isn’t the right time, future investment decisions should still be on your radar. A business is an entity, independent of its creator, that requires energy and financial inputs in order to be healthy. 

Arguably one of the most important investments business owners can make is into their team. If growth isn’t currently your goal, then take a look at your team. What can you do to make them feel more fulfilled, valued, and ultimately more productive? 

While paying your employees’ wages is an expense, spending money on higher quality training or skill-building for your staff is an investment. When your talent is honed, the business gets stronger. Investing in the well-being of your team pays off. In today’s work environment, it’s clear that happy, fulfilled employees perform better. 

Being mindful of business spending is a valuable trait in a business owner, but you want to be careful not to take it too far. Getting stuck in an “expense only” mindset can stifle the growth of your business. Operating from this space is akin to survival mode. Yes, there will be times when you need to run lean and clean, but keep your eye on opportunities worth extending yourself for.

Need Help Figuring Out How to Best Invest in Your Business?

At Financial Fitness Coaching I help my clients identify how their business spending is split between expenses and investments. If you’re not sure whether it’s time to invest in your business or how best to do so, I can help you gain clarity. 

Together, we’ll identify where you’re currently at, where you want to be, and what steps need to be taken to get there. To see how we can help you and your business, email me at kristen@financialfitnesscoaching.com or simply schedule a free 20-minute Discovery Call on my calendar.