How much do you invest in your business each year? Is it a percentage of your growth? What are your priorities when you invest? These are important questions to ask about your company’s investments, because investing in your company is challenge for every single business owner.
Why? Because there are always too many buckets to put your limited resources into, and while there are plenty of people, divisions, or hands-up scrambling for these limited dollars, the question remains: How do you prioritize where to put them?
First, you can look at how you spend and what has a good return on investment; for example, do you give rewards or incentives to your managers or divisions who do a good job? Do you put money into groups who have not received a budget increase for several years, or to someone’s group for simply doing “a good job?” Whatever ways you spend and invest your money, the decisions need to be ones that help you grow your business. Often, people will say, “I need to have a percentage of payback on any investment in a period of X or I won’t invest in it.” It is not always that simple. Take a close look at your investments and how they impact your company overall, and don’t spend or not spend based on a whim. When spending and investing money, make sure you are using your resources, however limited, in an efficient way.
So, moving on, how do we go about making these smart investments?
First identify the holes in your business; for example, “my competitors are squeezing me on ‘xyz’ so in order to effectively compete, I need to do ‘xyz.’” After you have defined your investment priorities, ask yourself what else you might need to compete. Technically speaking, if you are investing in your company’s competitive position, your investment should produce a positive cash flow that raises your revenues, which increases your ability to spend more. If your investment decisions are made based on the whim of the day, then you’re not focused on the big picture.
It is also important for a business owner to watch their own spending and investments on a personal note. If your staff sees you purchase an expensive sports car, or you jet off for holidays to fancy, exotic locations, when your business is struggling, work ethics can appear compromised.
Now don’t get me wrong; you have the right to reward yourself for hard work. However, if your company is struggling financially, and losing sales, staff and customers can be put off by an owner’s purchases. You don’t want your staff and customers to turn against you.
A lack of a focused investment plan for your business’s growth has a series of downfalls. You’re undermining trust in your customers’ eyes and undermining their faith in your ability to address their needs. A lack of an investment plan means you’re also unable to present a growth plan for your company. Without these plans, you may find customers look to your competitors for their needs.
In my experience, I often propose to business owners that each investment that you consider be looked at in terms of how it supports your customers’ and your company’s growth. Ask yourself: How important is it to make this investment — meaning what will it do for you? As well as, if I do not make this investment, how will it impact my company? The focus of your investing needs to be based on revenue growth.
There are plenty of companies who cut costs, rolling dollars to the bottom line, and consider it to be a revenue increase. This is not a true increase and it will seriously risk your growth plans. Cutting costs without a strong reason to do it can undermine the health and well-being of your organization, especially in the long run.
It is smart business to spend strategically and invest wisely. Define where you need to be as a company and make a smart investment plan on how to get there. This is the magic bullet you need to outmaneuver your competitors.