As a business owner, it’s easy to feel as if you’re dumping money into a void.
There are so many things you could invest in – tools, software, technologies, equipment – and it’s difficult to figure out what will end up becoming an investment rather than a financial commitment.
Investing is an important part of every business, and spending money on these things are inevitable. After all, we want to buy these tools to make our lives easier. But we don’t want to go broke doing it.
Here are a few questions to ask yourself before every purchase to bring you closer to making a sound decision financially:
- Will The Product Save Me Time?
You know that saying “time is money”? Well, that’s especially true for you.
Businesses in the Relational Economy rely on the human element as the product.
Because you have a service-based business, you’re paid for your time, rather than a product. So, it can be difficult to find efficiencies and scale your business. After all, everybody only has 24 hours in a day!
That’s why some investments make sense if they help you save a significant amount of time. This time can be freed up to take on more clients, and do more revenue-generating work.
Let’s say you are a hairstylist for instance, and there is a new piece of equipment that will help you dry hair in less than two minutes. The machine costs $1,000. You calculated that on average, you usually spend 8 minutes drying clients’ hair. You usually take on 10 clients per day. So, if you purchased this piece of equipment, you would have saved 60 minutes, or one hour.
In that hour, you could take on an additional client each day. Say you projected that you could fill that extra time with another client 3 times per week, and you could make $100 per additional client. That’s an additional $300 per week, and in less than a month you will have paid for the machine with the extra revenue from your extra time.
Be realistic with how much time you can save and how many clients you can fill those slots with. Once you make this calculation, you’re in a far better position to make a sound decision.
- Will The Product Save Me Money?
There are a lot of reasons somebody might invest in a piece of equipment or a tool for their business, but one of the most common reasons is to save money.
There are many things you could invest in that would save you money in the long run, after the initial investment is paid off. For instance, there could be a software or piece of equipment you could buy that would mean you wouldn’t have to pay a staff member to do the job, thereby saving you money on wages.
The key here is to be honest with yourself when you’re calculating how much money the tool would save you. You want to make your investment back quickly, and you’re not doing yourself any favors by overestimating.
- Can I Afford It?
You’d be hard pressed to find a business without debt these days. Businesses and families alike have racked up debt freely, leaving themselves in precarious positions.
Debt isn’t always evil, but without debt, you simply keep more of the money you earn through your business. However, if your small business is in debt, that may not be a reason to hold off on buying an investment until later.
Before making any purchase of assets, sit down and take a look at your financial position. Can you afford it?
Do you have the money for it already, or would you have to take out a loan? If the latter, do you already have an outstanding loan? How much debt are you comfortable taking on in your business?
The answer to this question will be personal and different for everybody who answers it, but it’s always important to take stock of your financial position before making any purchasing decisions for your business.
Evaluating investments can be difficult, and perhaps the most difficult part about it is holding ourselves back from buying every cool new gadget that comes out on the market.
But if you take the time to really evaluate whether it will save you time, money, and whether you can afford it, you’re on your way to making a good decision.