Investment or Expense? 5 Steps to Clarity

Most entrepreneurs know intellectually that an investment in business is different than an expense. But I’ve seen many of them evaluate an investment as though it were an expense.

It’s perfectly understandable, because most of us have been programmed since childhood to regard all money going out as an expense. It’s simply a subconscious habit.

Be very honest with yourself. What is the first thought you have when an opportunity comes up to invest in your business?

Is it “Can I afford it?” But here’s the critical question: What criteria are you using to evaluate whether or not you can afford it?  Are you looking at your bank account and your financial situation?

If you are, then you’re making your investment decisions by treating them as an expense.

When money is tight, it’s a natural impulse to pull back on expenses. Fear of not having enough comes up, fear of being in debt, and fear of loss.

We feel more protective of what we have, and the tendency to see everything as an expense increases. That subconscious programming gets louder.

But if you treat an investment as an expense, you could be pulling back at the critical time when you need to be investing.

You could be getting in your own way, preventing the very thing you want and need most: business growth that will put money in your bank account and allow you to enjoy the comfortable life you want and deserve!

So how do you overcome that unconscious programming and fear, and evaluate an investment opportunity appropriately?

The first step to changing any behavior, in life or business, is always to become aware . . . to catch yourself doing it.

Once you’ve caught yourself, you can choose to evaluate the opportunity in a more effective way.

The following 5 step process is what works for me, and it’s worked for many of my clients as well:

1. Get a calculator, a pen and a piece of paper. Write what the potential investment is, along with the amount of money required. Make a list of all the potential benefits to your business the investment could bring within a 6 month period.
2. Look at those benefits and realistically determine the minimum amount of addition money (or clients, if you prefer) your business will likely bring in within that time period, if you invest. Add it up.
3. Compare that figure with the investment amount required. How much of your original investment have you made back? You may want to adjust the 6 month time period when calculating your return on the investment, depending on your particular circumstance.
4. Now calculate the amount you’ll have when that figure doubles within a year . . . then triples within a year and a half . . . and so on. Because a sound investment just keeps on giving back!
5. Now go back and do the same process again, but this time calculate it with the maximum potential return in mind, instead of the minimum.
   Look at the range between the minimum and the maximum potential return, and compare it to the initial investment requirement. Now ask yourself, is this a worthwhile investment?

Here’s an example: I work with a lot of coaches, and most coaches only need 1or 2 clients to make back their investment in a 6 month Platinum business coaching program. 2 clients!

I ask them: “Do you think that after 6 months of intensive, strategic business coaching designed to skyrocket your business, you’ll get at the very least 2 more clients than you might have otherwise?”

Most agree they would expect that at the very least. And of course the maximum potential is so much more than that, for years to come!

Whatever condition the economy is in, sound business principles remain the same. The sure way to go nowhere is to run your business on subconscious programming!

Instead, take a step back (taking a deep breath always helps), calculate your investments with a shrewd eye, invest wisely, and reap the benefits of a thriving business.