What Are Business Investments? Are They a Good Idea?

If you’re wary of investing in your business, it might be because, when you think of spending money you’re not sure will pay off, you think of someone like Jean Ralphio and Tom Haverford in the show “Parks and Rec” spending money on ridiculous things (like a limousine with a hot tub) because they’re all “business investments.”

Of course, everyone who watched the show knows it took them no time at all to go broke because they were spending way more than they could ever hope to make back. But that doesn’t mean you shouldn’t invest in your business.

However, it is important to recognize that all investments involve a certain amount of risk, and that includes business investments. That’s why you need to carefully consider each investment and the likelihood it will create a return on that investment before you pay up.

First, let’s start by defining what a business investment is.

What Is a Business Investment?

A business investment is anything you spend money on that you expect to either help increase your revenue or increase the value of your business.

Some common examples of business investments include:

• Hiring employees
• Buying equipment
• Buying new real estate or making improvements to your existing real estate
• Marketing
• Hiring a lawyer to help you protect your intellectual property

Some of these business investments will directly help you increase your revenue by helping you serve more clients. Others will help increase your revenue in a more indirect way by helping to get the word out about your business while making sure no one else is out there pretending to be you.

How to Know if a Business Investment Is Likely to Pay Off

Jean Ralphio and Tom Haverford should have known that a limousine with a hot tub was not an investment that was likely to pay off. It was flashy and fun, but did nothing to help them increase their revenue or the value of their business.

To avoid making their mistake, here are some things to consider before investing in your business:

Where Are the Gaps?

Before you can know which investments will drive results for your business, you need to know what results you need. What’s already working? What’s not working?

For example, if you’re waiting by the phone for clients to start calling, but all you’re hearing is crickets, you’re probably not ready to hire new employees – unless you’re looking to build a sales team.

Instead, you’d be better off investing in marketing materials and memberships to networking groups so you can start getting out there and meeting people who need your products/services.

On the other hand, if the phone keeps ringing and you keep having meetings with people who seem interested, but none of them are becoming clients, it’s time to take a look at your sales process.

Or you might want to take another look at your marketing to make sure it’s driving the right leads to call you. If your messaging isn’t in line with your brand, or doesn’t resonate with your ideal clients, you can end up wasting a lot of time and energy talking to people who have no interest in hiring you.

How Much Return Can I Expect on This Investment?

If you’re hiring an employee to serve your clients, you need to know how much you’ll be paying that employee, and have an idea as to how much revenue you can expect that employee to generate.

If your employee is providing a service for your client, all you need to do is make sure you pay the employee less than you charge the client for that service to make sure you still make a profit.

If you’re selling products and hiring people to make and/or assemble the products, you need to calculate the cost of the raw materials for each product, as well as how long it takes to make/assemble one, and how much you’re paying your employees to complete the task. The cost of the raw materials and the wages of your employees need to be less than the price of the product you’re selling.

If you need more clients, you might want to start by looking at networking groups. Before you pay for a membership, you’ll need to determine whether your ideal clients are likely to show up to those meetings.

If so, how many clients can you reasonably expect to gain from that networking group in, say, one year? Whatever the answer is, will that be enough to justify the cost of your membership?

Conclusion

These are just some of the things you’ll need to consider before investing in products or services for your business.

A Bookkeeping Doctor can help by analyzing where your revenue is coming from and where it’s going. If your revenue is coming from certain sources more than others, it makes sense to invest more heavily in those areas. On the other hand, if you’re investing in equipment or services that aren’t panning out, a Bookkeeping Doctor can point out that lost revenue for you before it becomes a serious problem. If you need a Bookkeeping Doctor’s help, just use this link to schedule your free consultation and we’ll see how we can help.