h1

Throw Your Spending Plan Out The Window

August 10, 2011

In “Entrepreneurship and Making ‘Adult’ Financial Decisions” I Told the Truth about why I wasn’t at the eWomen Network Conference this year. And I outlined a spending strategy I had developed with a client:

“One of my favorite clients loves conferences and trainings; she has about $4,000 annually in her spending plan. She wants to spend more, but her business’ budget doesn’t allow for it. We developed a profit-splitting plan that puts a percentage of her business’ net profits into a savings account titled “Business Investments.” She doesn’t have to spend that money, but when a conference pops up that she wants to attend, she no longer has to discuss it with me or agonize over the pros and cons of the decision. If the money is in the reserve account, she goes.”

Best laid plans. While she was away at the eWomen Network Conference I received a text from her:

 

There are a lot of gurus out there selling marketing, sales and mindset training/coaching programs. Entrepreneurs invest hundreds, thousands, and tens of thousands in these programs. The potential and possibility of learning from someone like Lisa Sasevich can be irresistible, and in the moment of making the buying decision, it’s challenging at best to separate logic from emotion.

 

I have a friend who recently purchased her first piece of heavy equipment for her business: $25,000. There’s not a lot of passion involved in heavy equipment. A little exciting perhaps, but she would have never bought that piece of equipment if she wasn’t certain her business would generate a return on investment from the increased productivity.

So what should the return on a $7,900 investment in training from Lisa Sasevich be? The minimum is based on a dispassionate investment in mutual funds: if you invested your $7,900 in mutual funds you would expect at least an average 8% return annually. But business investments are much riskier, so they should yield a greater return, because a number of your investments won’t generate a return at all. And how should you monitor your investment? If you invested $7,900 in a mutual fund, odds are you would look at its performance when your monthly statements arrived. But my experience with business owners is that they don’t monitor their business investments with the same clarity and consistency (until they start following my methodologies.) Here are some questions to ask yourself when evaluating investments in your business:

  1. Will this investment yield me at least a 10% return over the next ten years?
  2. What do I expect this investment, in dollars, to do for me in the next year, three years, five years?
  3. If I spent $7,900 on heavy equipment for my business, what would I expect my increased profits to be?
  4. What three numbers do I need to look at monthly to monitor my investments’ performance?
  5. Would I have been happier, more at peace, or more certain of my investment had I invested the same amount in mutual funds?

While writing this I struggled over my final advice. You should ask yourself the five questions, but logic shouldn’t drive every business decision; that’s not what makes entrepreneurial magic happen. Emotions shouldn’t drive every spending decision either; that creates a train wreck of regret and shame. What lies in between logic and emotion? I was listening to a radio program on how we use intuition in business. Susan Rueppel, founder of Chief Intuition Officer had advice that resonated with my question.

“When you are pulled by a decision, stuck between logic and emotion, it’s time to tap into your intuition. How? Close your eyes.  Quiet your mind. Ask yourself the question. Visualize a traffic light. Is it green or red?”

Her advice resonated with me because it aligns with a belief I have: we all know the answers to our financial quandaries. But many of us walk around thinking we don’t know simply because we don’t spend enough time looking at our numbers.

Over the next year I’ll be asking my favorite client the five questions above, tracking and evaluating her investments’ performance, and reporting on it in this blog. Follow me to find out how her investment performs!

______________________________________________

Stacey Powell, creating more financial clarity at CreatingAnswers.com, tweeting at @CreatingAnswers and showing off Financial Art at Facebook.
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: