Did you know that you can actually make yourself money through your expenses?
There are two reactions I usually get to that question. The first is “Oh, I don’t make enough money to spend any of it.” The second, often seen among investors, is “You have to spend money to make money!”
Where is the truth? It’s somewhere in the middle. The truth is, you do want to stay on top of your expenses. You should make sure you’re not burning money. But a timid business owner who doesn’t spend will never grow the way they could if they were willing to spend on things that bring a long-term return.
The fact is, you can make money by spending it! But you have to spend it prudently. There are three categories where your business can spend money, and they have varying levels of return. If you make sure you’re spending your money wisely, in the right ones, you’ll set your business up for both short-term and long-term success.
These are pretty simple: they’re what it takes to get your everyday jobs done. For example, if you run a property management company, you spend money at Home Depot or Lowes to buy supplies for your properties. You’re getting wire and lumber and gypsum wallboard. These are your technician expenses.
You can get those costs very efficient—where for every dollar you spend you get two or three back. It makes sense—again, sticking with the rental example, keeping your houses in good condition means you can charge more for rent, and you’re more likely to have tenants. Given that you’re probably an expert in whatever your business is, you’re probably getting close to making the most of these naturally.
This is pretty simple: it’s what keeps the lights on, and it’s generally a sunk cost. Overhead and admin costs are one of the very easiest and most common areas where people waste money. It happens all the time, especially for companies that are first starting out. They want leads, so they go and spend several grand on marketing or a big CRM before the business can support it. Or another person gets into property management and spends hundreds of dollars a year on software that they really don’t need or use.
Don’t overspend. Do you need a CRM, or will a spreadsheet and calendar work? Do you need a ton of accounting software, or can you just get a professional to do it for you? You’re not really going to make money back here, but you can break even or mitigate the amount flowing out.
Services and growth
Personally, I like to focus on this one the most, because it’s the one where those expenses can really make you money in the long run. A lot of these costs revolve around one idea: buying back your time.
Take any business task that can be done either in-house or outsourced. I can spend money on Quickbooks, or I can hire it out. I can do my social media myself, or I can have someone else do it.
In addition, this is where people and property (if you’re in real estate) come in. This is where you buy back your time. This is also where value added services come in, too. Instead of just hiring out your bookkeeping, does it add value to your business to have someone who knows what you do and can tell you strategy moving forward?
It’s the most expensive, but if you’re being really purposeful in how you leverage this category, you’re setting yourself up for long-term success.
Through these three areas, especially the last one, you can see how your expenses actually set you up for success. Spending money on services and growth and cutting down costs that aren’t needed will put you in a good position moving forward, no matter what business you’re in. Take advantage of the good expenses and avoid the bad and the sky’s the limit.