Let’s just say up front that I am not a numbers person. I avoid math as frequently as I avoid feta cheese–all the time! I realized many years ago, though, if I wanted to be a “real” entrepreneur, I needed to take note of the numbers. I had to move away from the “bookkeeping” method of tossing receipts into a file box and hoping for the best when tax time rolled around.
I knew I needed to set up separate bank accounts. I also knew I needed to work with someone who embraced numbers as tightly as I pushed them away. I needed to stop spending money like a drunken sailor in case the bottom fell out and I had to resort to dressing Henrietta in last year’s outfits (gasp!).
An accounting professional was one of the first professionals I added to my business team. I wanted someone who could take my number mess and turn it into a lovely, working budget… and she did. I work with pet lover Kelsa Dickey of Fiscal Fitness and she got me on track with budgeting, spending only what I needed for my business, while leaving me some “mad money” for those impulse purchases that we all want to indulge in.
We also talked about how I needed to stop frivolous spending (Vera Bradley purses, anyone?) and decide whether what I was spending money on was a wise business investment (online classes, coaching sessions, business books, etc.) or if it needed to be curtailed. It was eye opening because there were some items I’d avoided paying money for because I deemed them “not necessary” and other items I purchased as soon as they came on the market because I was convinced my business would benefit (tech gadgets galore). Frivolous spending or wise investment? Let’s explore how to tell the difference.
Advice for whether an expense is necessary or frivolous
“Does this expense help me generate more revenue?” Another way of asking is, “Will this expense add value to my business or my services in some way?” You want to be able to say “yes” as often as possible. An expense that has the potential to bring in more revenue is the IDEAL expense!
Another question to ask is, “Does this expense support my business model and vision?” It can be easy to be tempted by a stellar sales pitch; another business owner convinces you need his or her product and you’re sold! A short time later, you realize the thing you bought doesn’t fall in line with what you’re trying to do or where you see your business going. Having a strong mission statement for your business and asking, “Does this expense support this mission?” is a great way of keeping spending in check.
The third question to ponder is, “Does this expense solve a problem I’m having in my business?” Maybe your productivity is lacking because of a slow, outdated computer. Or perhaps you’re getting the wrong kind of clients because your website needs a refresher so it attracts the right kind of client. Spending money to solve a business problem is often a smart move. But you should always ask, “Is there a way to solve this problem without spending money or by spending less money?”
The final expense question you should ask when it comes to adding a service provider, “Is this something I can do myself, or is my time better spent focusing on my expertise?” Bookkeeping or blogging are great examples! We could all take the time to learn HOW to do these tasks and then INVEST our time into completing them, OR we could hire the people who are already good at it so we can spend our time on what we’re good at!
ACTION ITEM: One quick step you can take is to calculate the hourly rate and compare it to what you could make during that time. For example, if it would take you five hours a month to do your own bookkeeping, but a bookkeeper wants to charge you $100/month, this service is costing you $20/hour. If you have the ability to make, let’s say, $45/hour, it’s a better use of your time to focus on the revenue-generating activity over the business task. I’m sure your blogging clients feel the same way. They COULD write their own blogs, but they wouldn’t be as good and it’s likely their time is better spent on doing something that makes them more money that you can’t do for them.
Bottom line, Kelsa says, “It’s okay to not have EVERY expense be a ‘responsible’ or value-added expense, but they should be few and far between. They shouldn’t be the norm.”
A couple of “tricks” you can implement are:
- Shoot for one “frivolous” expense every month (or another time frame)… the idea is that you allow yourself SOME wiggle room but you know you’ve put a limit in place, too.
- Shoot for one in ten: Out of every ten purchases, one can be frivolous or purely a want and the rest need to be value-added.
What do you consider necessary expenses for your blog or business? Do you ever splurge on a “want” instead of a need? How do you tell the difference between the two?
Robbi Hess is an award-winning author, full-time writer, newspaper columnist, writing coach and time-management guru. She works with bloggers and solopreneurs and blogs at All Words Matter.