As we come to the end of the year, there is a temptation to spend. There’s an idea amongst entrepreneurs that they need ‘write offs’.
But there is a big difference between investing and simply spending in your business. Spending is handing over money; investing expects a return.
Investments yield returns
When you make an investment into your business (rather than just buying for the sake of write offs), you expect an ROI.
Return on Investment is the amount you expect to make from the amount you pay out.
When I spend money on a Facebook ad campaign, that’s an investment into my business. I am expecting to bring in more revenue than I spent on the campaign.
If you spend money on a business coach, you are making an investment. You are hoping that the strategies they teach will allow you to bring in more cash than you spent on them.
You are hoping to see a good return on investment!
My company is currently hiring social sellers to promote my DIY Bookkeeping course, Profit Perfect. This is an investment as I am expecting to bring in more revenue through these social sellers than I am spending on them.
How do I know if I’m getting a good ROI?
In order to know whether an investment is a good one, you need a system to track your spend and returns.
If I hire John Doe as a social seller, and I pay him $1000, I need to know how much revenue he brought in. If I track the sales he makes, and he brings me in an extra $5000, then I’ve made a great investment.
If I’m heading to Staples though to buy a calendar for 2022 – that’s not an investment. It’s something I need, yes, but it’s not going to bring me a return.
Investments are where it’s ok to spend more!
Thinking about my Staples calendar example – this isn’t going to yield a return, so I need to be frugal with my spending. Sure, the pink one might be much cuter than the black, but if it’s twice the price and does the same job, it’s best to go for the cheaper option.
Making investments doesn’t require the same frugality.
You want your investments to pay off and bring you the best return you can get. It’s ok to make sure you’re investing in the right person, product or service to do that – even if it costs a little more.
BUT. You need to make sure you can track what returns you’re making – otherwise, it’s wasted money. A true investment will bring a return, and if you don’t have a tracking process in place, you’ll never know if you’re making one!
You need to calculate the revenue generated by your investment
If, for example, you invest in Google ads, you need to know how much money those ads have brought in.
Too often, entrepreneurs spend money on a course, a service or a business coach in the hopes of yielding a ROI. But they don’t have a system in place to track how much money they’re making from it.
An investment is specifically something you spend money on in the hopes of making more money. If you don’t know whether you actually did make more money – how do you know if it was a good investment?
If it won’t generate a return, it’s not an investment – it’s just spending
Regular business expenses are a part of being an entrepreneur, and that’s fine. But if you want to make a good profit, you need to keep your simple spending low. Making frugal decisions when it comes to the expenses that don’t yield a return (like your calendar) will help you keep profits up.
With investments, however, the goal is to make more money. You don’t want to necessarily be frugal here. You could invest in the cheapest business coach around, but if they don’t bring you in a ROI then you’ve wasted money.
The goal is to come out of an investment with more money than you put in.
I’ve worked with people who have invested $1000 into their business and made ten times that. But I’ve also worked with people who were unable to tell me how much they made from an investment, because they didn’t have a process to track it…
What you expect, you must inspect
If you’re expecting to make a certain amount from an investment, you need to be inspecting it – checking and tracking it – month after month.
When you have the money available to invest, but not the time to set up a process to track your returns, then this is not the right time for you to be investing.
If it doesn’t make money, it doesn’t make sense.
We need to know that our investments are actually yielding a return – making us money. Without a way to track the revenue coming in from various investments, we have no way of knowing if the investment was smart – or simply a waste.
If you have the cash and the time to set up the infrastructure to track investments, then go for it. But if you’re lacking even one of these, now is not the time.
The two questions you need to ask yourself when you’re considering making an investment into your business are:
- Do I have the cash available to spend?
- Do I have the time to set up a system to track my returns?
A good investment is something that can change your business – and your life. But for every person who has said ‘Investing in this (course/mentor etc) changed my business’, just know they’ve likely made a few bad investments along the way.
They were able to track their returns, determine whether they had made a smart investment or not, and learn from their mistakes.
Tracking your investments and returns not only means you know exactly what’s happening in your business. It also allows you to make smarter decisions in future.
If you want to see the full training I did on making smart investments, you can watch the YouTube video now.
I would love to know whether you found the training useful, or even to chat to you if you have any questions about making investments. You can always send me a DM and I will get back to every one that I receive.
Start planning your smart investments, and have fun doing it!
Also, check out my website to learn more!