Reinvest in your business

One of the mistakes I often see with the newly self-employed is failure to invest in their business. Flush with some early success, the owner takes out too much salary and neglects the needs of the business.

Whether it is advertising, tools, equipment or further education, there are always things your business needs. You constantly need to advance, to improve: your competition isn't letting its business go neglected, is it?

I know, it can be hard when first starting out, especially if the money coming in is barely enough to meet your personal needs. It can be hard in times like this when recession may cause you to lose business and suffer slower payment or lowered rates for the business you can get. Still, you can't let your business degrade. Whether it's five year old computers need upgrading, new software that would let you do more, that seminar that costs you three days of zero income in addition to its own cost - whatever it is, you can't afford to neglect your business needs.

It can be helpful to budget for these expenses. If you lack the will power for that, or have let things slip too far, it makes perfect sense to borrow money to meet these needs if that's what you have to do. If the investment you make is necessary for your business, if it will improve your ability to compete, increase your sales or reduce your costs, it may not be difficult to justify borrowing. I'm not saying that you should drive yourself into debt just because you want a new computer - I'm saying that if your business is hampered by lack of that equipment, borrowing to get it now can be sensible.

When your investment does pay back, leverage it. Let's say you tighten your belt and decide to throw $200 a month into advertising. It pays off: not fantastically, but it gives you back $300 a month or so. You are $100.00 ahead - if you really need it, go ahead and take some of that for yourself, but it would be better if you upped that advertising to $300 instead or used the $100 extra for some other improvement that will pay you back.

If you absolutely don't have money, consider that your time is also an investment. Yes, you are tired and you work hard, but again: this is important. Finding a few extra hours to bring in a few extra dollars that you can then leverage into something else is hard, but it can pay off. If you can get those dollars working for you, you can drop the extra hours later - the important thing is that your business needs investment.

At the very least, make a list of the things you need. Rank them by their value to your business and start making plans to get them. Having that list isn't as good as having what you need, but at least it keeps you focused on the goal.

Got something to add? Send me email.

2 comments

Sun Mar 29 00:25:42 2009: 5891   MikeHostetler


Good thoughts, Tony.

I wonder if the self-employed don't make the reinvestment for a lot of the same reasons Big Corporate America doesn't -- mainly because "if it's not making money right away, then it isn't worth it." I hear that a lot from my day-time employer.

Maybe it's not just marketing -- maybe it's taking some non-billable time to learn the latest in your field, taking a class, etc. Any sort of edge in today's market would be helpful.



Sun Mar 29 00:52:03 2009: 5892   TonyLawrence


Exactly.

I've said this many times: yes, you can cut expenses when you have to, but your very first thought should be "how can I increase income" - and that doesn't necessarily mean "now"; increasing income down the road is just fine. Investing in your business includes investing in your own skills for future gain.

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