Monday, March 05, 2001

Saving your way to prosperity:

Essential Lesson #42 for aspiring entrepreneurs: DON'T SPEND MONEY! Not your company's, not your investors', and certainly not your own. Here's why:

Every "investment" has a payback period.
If someone tries to justify spending money by saying, "It'll pay for itself," ask her the length of the payback period. The instant you write a check (or swipe your credit card), that money is gone. That's fine if you get paid back in a week. In today's uncertain business climate, payback periods are always longer than you think, sometimes infinite. Better to do without.

Spending money has "hidden" costs.
Spending money is even more expensive than it seems. Not only are you spending post-tax dollars (which means that you'll need to earn close to twice as much to compensate), every transaction generates overhead as well. Every time you spend, you need to create purchase orders, book expenses, and audit the transaction. And if you don't spend your money up front on good accounting, you'll spend it later on wasted time, shrinkage, and migraine medication.

Purchases stretch your "stomach" for expenses.
Just like eating big meals stretches your stomach, spending the big bucks stretches your stomach for expenses. Once you start, it's hard to stop. Both you and your employees become inured to six-figure expenses, and when that happens, you can kiss your cash reserves goodbye.

Yes, it's harder to find alternatives to spending money, but it's like eating your vegetables: It'll make your company stronger in the long run.

1 comment:

dhd said...
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