I’ve been thinking a lot lately about how living with substantially less income has caused me to be far more conscious of my spending needs and wants. I’m frugal by nature (see core principle #7), so leading with my wallet isn’t something I do. But, as my business has started to grow, I’ve found myself feeling increased pressure to open up a bit to accelerate that growth. This has naturally caused me to spend more time thinking critically about what I really need for my business versus what I merely want for it.
I imagine most all business owners and those that aspire to it are confronted with the same challenge. What sort of expenses make good sense and are necessary, and what are those things that can wait for another day? I’ll let you in on how I’ve been dealing with this question, and by sharing my own decision making approach, maybe I’ll help you make your own.
These first two, are needs
First, as I mentioned in a previous post, I believe it’s of paramount importance for new businesses to spend to secure good council on critical things such as business formation and taxes. For me, with this being my third business, I was very confident in regards to the former. However, when I considered the question of taxes, and tax-related liabilities, I knew I didn’t know enough to move forward without finding expert help. Fortunately, I was able to find a local, fellow small business to help me out. This decision has taken a load of concern off my mind. And has allowed me to confidently move forward with the knowledge that I’m not taking actions now that could have long-term negative outcomes.
My strong encouragement to anyone is to prioritize whatever available resources you have to get your business structure and taxes right. These are business needs, period, and wrong decisions can prove fatal.
Second, while it’s taken me a longer than I expected or wanted, I’ve finally secured business insurance I’m comfortable with, and at a level appropriate for my needs now. I’m not going to lie, a good small business policy is one of the bigger annual expenses you’ll likely face. Especially if it includes professional liability coverage like I needed. And thinking about how to pay for coverage while you’re still trying to figure out how to generate customers and revenue is scary. But to forgo having insurance in place is unwise. Fortunately, there’s a lot of scalability to the insurance marketplace. Essentially, you can follow a buy what you can afford strategy, and then step it up from there as your revenue grows.
Also, while paying on an annual basis secures discounts you’ll ultimately want, there are options to pay quarterly and monthly. While these options cost more in the end, they’re at least friendlier from a cash flow perspective at a time when managing cash flow is crucial. Me? I’ve opted to go the annual payment route because at this stage I need to take advantage of every discount I can.
Starting here, decisions get harder
At this point I want to say, if you’ve taken care of the two needs above, you can now breathe a bit easier. But from here on, the distinction between needs vs wants becomes murkier. And when decision making becomes cloudy, the chance for making less than optimal choices rises. For example, setting up a proper business only checking account is a need. But not one with an associated cost that would make your eyes tear. If it does, you might possibly have confused what you need with what you want. Say, a business account separate from your personal account vs a relationship with a particular bank. I chose to go with the credit union I’ve been with for years. They know me, and the costs are reasonable for the service received. Done. Anything more would have been a want.
Or, maybe you’re choosing between using some piece of equipment or relationship you already have vs something else you see as better. How does need vs want factor into which is the right choice? For me, I make these sort of decisions based on how sticking with what I have vs getting something new impacts my ability to do my work. Essentially, I do a cost/benefit analysis. Does the realized benefit outweigh the cost? This takes time but comes with its own benefit of helping you really understand your business better.
One I’m working through right now
Right now, I’m working through on of these need vs want decisions. I feel like it’s time for me to update my website. Now, I don’t need to update my site because what I currently have is serving me pretty well. But I’m fairly confident that by introducing some key upgrades, I could make my site better. I want to do it. Should I spend the money now to do so? As much as I want to, this potential expense is still too much want to do rather than need to do. So, for now, I’ll continue working what I have while exploring my options as deeply as I can without committing any significant money to the process. Enough to help me get closer to a well informed decision but not enough to have made the decision so.
How do you make sense of your business spending? Do you have a similar approach to considering choices as needs vs wants or no? If, by chance, you haven’t really already considered this question I hope my experience with it helps. That would make me very happy.
Do good. Later.