One of the most common laments I hear from the founders I work with is “how do I get better at finance?”
Sometimes the money stuff seems like a black box, especially if you hate math, have a complicated relationship with money, are intimidated by your banker or don’t have a background in business.
Relax.
You don’t need an MBA or a trust fund, although those certainly can help. What you do need is to build a stronger foundation for financial decision-making. And that starts by getting comfortable with the difference between spending and investing.
Know difference between spending and investing
When we look at our expenses, a lot of us wonder if it’s worth it. This is especially true if we’re prone to a “lack” mindset (and who isn’t, from time to time?).
For our enterprise to grow, we need to make strategic decisions about what we do with our time and money. That’s why it’s important to know the difference between spending and investing.
- Spending is when you fork over resources without intention or because you feel you have to.
- Investing is when you intentionally expend resources on marketing programs, improving your systems, expanding your leads or sales potential, getting new skills.
“But, Jill, I write my office rent check every month or pay my Franchise Tax without intention. Does that mean it’s not worth it?”
Nope. Operating expenses like these are the good kind of spending. The bad kind is motivated by fear or obligation or because everyone else is doing it.
Blowing dirt around
Every day, I watch gardeners show up in my neighborhood and blow leaves and dirt off the sidewalks and driveways into the street. It’s loud and disruptive. And overnight nature blows some of the debris from the street back on the sidewalk. The next day, someone else shows up and blows it back.
Each property owner pays people to rearrange the dirt but not actually solve the immediate problem, which is that someone needs to pick up the leaves and dirt and put them in the green yard waste bin.
That’s paying people to move dirt around.
How to reduce spend
Look at a lot of businesses and you see the same thing: noisy, expensive, performative spending decisions. Yours may be one of them. Here’s how to find out.
Review your expenses and see where you’re blowing dirt around, as a CEO or a person. This is especially important if you spend significant energy, money, or time on rearranging that dirt.
- Do you really need to do this activity?
- If you do, how could you move any amount toward a resolution?
- Who can help you with that?
If you find operating spend that isn’t serving you, give yourself permission to stop. That’s smart financial decision-making.
Changing the way you think about outlays of time and cash is the first step to becoming a more effective financial manager and building a financially sustainable business.
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