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When running a business, owners and managers know that investing in your business is critical. But knowing when to invest and how to invest is crucial too. We’ve all been told to “control your costs”. But is that really helpful advice? There are many factors to deciding how to spend your money.

First of all, what are “costs” and “investments”? For the purpose of this blog, “costs” are the everyday operating expenses for a business. They are things you know are coming every week, month, or quarter and you can plan around them. These include payroll, meals, rent, etc.

“Investments” are larger commitments for the growth of your company. Whether paid for up front or financed, these costs are active measures to grow your business. Investments can include launching a marketing campaign, new equipment, updating software, or hiring.

Here are 5 considerations for your small business:

1. Know your Vision

Before committing to an investment it is important to know your company. I have been reading Insanely Simple by Ken Segal, and he emphasizes how important it is to truly know what you want to achieve. It’s amazing how many companies have mixed or conflicting visions across departments. Having one clear, cohesive vision will help everyone at your company, (even you), keep focused on the important things. For more details, see Mark Weinberg‘s book.

2. Know Your Goals

While having a clear vision is important, it has to be translated into action. You need goals. Take a moment to sit down and write out what you want to accomplish in the next 3-months, 6-months, 1-year, and 5-years. Knowing where you want to be is half the battle. Your concrete goals provide a roadmap you can come back to when making important decisions.

3. Know Your Cash Flow

Keep on top of the money trail. Know what you’re spending each month and how you’re spending it. By understanding your operational capital needs, you will know whether it is even feasible to make that next large investment. Knowing where the money flows allows you to target areas that can be cut back if necessary, giving you more flexibility in how you run your business.

4. Know Your Priorities

So, you want a new website, a brilliant marketing campaign, 10 new Apple computers, and a week-long corporate retreat. If you’re like most companies, you can’t have it all. At least, you can’t have it all right now. At this stage, revisit your Company Vision and Goals to determine which investments need to happen right away, which need to be placed on the back burner, and which need to be tossed out. In other words, which investments will get you to where you need to go? It’s easy to lose focus, but by coming back to your Vision and Goals you can keep everyone in check and on track when it comes to your priorities.

5. Know Your Expectations

If you’re a decision maker, you are likely fielding requests from different parts of your business, and you can’t always make everyone happy. By managing expectations, you manage reactions to your decisions. Are others in your company aware of upcoming changes or investments in the works? Make sure the right people know your priorities, and they know you are considering ALL factors before making a decision. By setting realistic expectations, you avoid upsetting those who don’t immediately get the go ahead for their pet project or new equipment purchase.

Think carefully about who your decision will affect, who might need to be a part of the decision, and at what stage of the process. This ensures that you get the right input and have all the resources you need to make the best decision for the business.

Once aligning your Vision, Goals, Cash Flow, Priorities, and Expectations, you are ready for action. With these five considerations in mind, you can think clearly about the when and how to invest in your business and be confident that you will make the best decision.

QUESTION: What have you learned about investing?

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