How conscious are you when it comes to how you spend your money within your service business?
Every dollar spent should be thought of as an investment in your business. For me, I have always tried to shift my language from “expenses” to “investing”, as it changes how you look at how you deploy your cash. How can I ensure I’m investing in more assets within my business? The language you use, I believe, makes a big difference. The same goes for why I never use the word “client” and always “customer”.
When times are tight, I think we can all relate to pulling up our statements and trying to cut costs. Even when times are good, auditing is always a worthy exercise.
For me, in the past, it has always been a mediocre attempt at cutting and justifying costs. Maybe a few line items get removed, but in most cases, not much does and the ones that are on the fence are sometimes left in an arguing match of trying to justify why they should be kept.
Thinking of each line item in a different way, however, can help you make less emotional decisions when it comes to money. I like to ask, “Does this purchase directly help reduce costs or drive profits?” In most cases, this makes your decision making more black and white. Thus it becomes easier to cut certain things that aren’t actually impacting your business in a positive way.
Conscious spending is especially important with items that start costing more. Are you going to buy a used computer or a brand new top of the line one? Do you really need “X” software? Are you renting an office or would just staying remote be best? It is easy to “pimp” our expenses or “over-invest” in certain things. I”m all about quality items, nice phones, high-grade computers and to be honest, I have fallen victim 100% to over-investing in assets many times. What is important to remember though, is that every dollar you overspend on things like this is one less dollar you will have to invest in your business and the areas that actually move the needle.
You are, in many ways, sabotaging your success and wealth creation with short-term lifestyle expenses.
Let’s look at an example of two productized service businesses:
If you were to choose one business above, which one would you pick?
One may be tempted to choose Business A because it has $1,000,000 in assets, but the best business choice would actually be Business B. Part of the game of business is to get the most leverage “effectiveness” from the least amount of assets. Business B in this example would be very effective at driving revenue from very few assets.
When I started looking at it from this lens, things started to shift for me positively. Everything you purchase is an investment for your business. Whether it be a piece of software, tool, a person, or a computer, these are your “assets”. The main goal is to ensure these assets like I mentioned above either reduce expenses or drive profits.
Typically in a digital service business or productized service, your assets will be a blend of people and software.
So, how effective are your current assets at generating revenue in your business?
I would suggest adding this question to your monthly financial review as well ask yourself when reviewing your assets, “Do I really need this?”, “Will this help me make more money?”