There is one distinguishing difference between an expense and an investment. That difference is a “positive income result”. In other words, if by spending money, you can generate more income or growth than the expense, then in essence your spending is not a waste of money but instead a means to increase revenues. As I have noted in prior blogs, there are four very important areas of investment that must be a focus for any successful business:
1. Proven People
2. Proven systems, processes, products, etc.
3. Innovation
4. Personal Development
Follow this link to read more about these four areas:
http://www.gordonhester.com/?p=433.That being said, I wanted to add another important element to the investment vs. expense question. That element has to do with “Perception of Value”. If you have received a “positive income result” from spending, then you understand value because you have experienced it. What do you do when you have a proven investment? Feed it. One of the key momentum principles is to feed what works and fix what is broken. However, as for many investments, a “leap of faith” is often required when you do not have the experience of getting a result. It is these times when you have to be able to trust that a spending decision will create a positive income result. Often a great strategy is to examine others who have experienced results and learn from their decisions. Experience is always the best teacher. However, that doesn’t mean that it has to be
Price objections are generally value objections. In order to change the thinking about the cost or expense, you have to be able to connect to the value. This means getting clear about (1) the probability of a result, and (2) the benefits of investing back into your business when that type of spending often feeds income, business and personal growth. Rest assured that if anyone is questioning the price of a product, service or other investment, what they are really questioning is the value of spending the money. Simply put, they are not convinced that the results are worth the spending. When this is the case, it is critical to be able to shift thinking and increase the “value proposition” of a spending decision.
In the end, one of the key factors in a successful business is the constant investment back into the business. Too often small business owners fail to understand the value of re-investment back into their business. Instead of re-investing capital and profits, they use them to elevate lifestyle. Clearly people use business as a vehicle to enhance lifestyle, however, when lifestyle drains a business, the business will ultimately suffer. Remember, there is a simple formula for investment:
Note that the formula points out some key lessons. First, you have to track spending. You will not know whether spending is an investment if you don’t track the results produced from the spending. As the old adage goes, you have to inspect what you expect. Second, the “result” is defined as consistently producing more income than the expense. This turns an investment into a system. Finally, if you have a system that works, then you feed it with more money, more time, and more resources. That is how you make a business grow from investing (or re-investing) back into it.
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