New Entrepreneurs, Remember… It’s Okay To Spend Money

Overheads. The very word likely sends a shiver down your spine. Overheads are bad. Overheads must be cut down. Or overheads are an indestructible hydra with an infinite number of heads that continues to eat away at your business until there’s nothing left for you or your employees.

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But while it’s fair to say that overheads should be carefully managed, they should not be regarded as the bane of your business. Overheads are important. Sure, indiscriminate or vanity spending can mire your enterprise in a black hole of debt that can be increasingly difficult to crawl out of but it really does take money to make money. Judicious spending can help your business improve and grow. It can give you a leading edge over your closest competitor. It can result in an improved experience for your customers. Here we’ll look at some abiding principles of business spending and some areas where you should be able to spend without feeling a twinge of guilt.

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Never spend until you’ve calculated your ROI

Every aspect of business spending has a fiscal multiplier. That is the amount of economic activity that the spending will generate and the return on your investment that you can expect. When investing in inventory, for example, you already know what your profit margin will be so you can calculate the fiscal multiplier fairly simply. If you purchase $1,000 of inventory which will generate a profit of 30% your fiscal multiplier is 1.3. It will pay for itself and the .3 represents your 30% profit. There are other areas, however where calculating your ROI may be more complicated, but here are some areas where you can spend with historically high ROI.

It’s okay to outsource

You’re starting out with a string idea of what you want your brand to be, and that’s commendable. But don’t let that mentality lead you to believe that you should do everything yourself. Very often this can result in dramatically increased overhead costs and reduced productivity. Don’t be afraid to outsource functions like Human Resources, marketing, lead generation and Business IT Strategy and Planning to the experts. Not only will they be able to create a solution that’s tailored to the specific needs of your business, they will regularly audit your provision to ensure that it’s fit for purpose.

Invest in your image

Needless to say, how you appear online to prospective leads plays a huge part in optimizing your conversion rates. If you’re starting out on a shoestring budget and doing everything yourself you may be cutting corners in web design, content and user experience (UX) that are inadvertently putting customers off. Invest in top drawer talent and your website will not only look beautiful but subtly influence user behavior to increase your conversion rates.

Spending for growth

Finally, it’s important to look at how your spending will facilitate growth for your business. Anything that can boost your productivity, increase your output or make your processes more efficient is worth seriously considering. Don’t be afraid to invest in the equipment and digital tools that will take your business to the next level.

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