a business … “I am running out of money to spend on …”

business thriving or

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“You try to be greedy when others are fearful.

And you try to be fearful when others are greedy.”

 

 

Warren Buffett

 

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Well.

 

I have been involved in several “stop spending money on those things because it is a waste of money” and “stop parsing out money in nickels & dimes and spend some hundred dollar bills for gods sake” business discussions lately.

 

One of the most challenging aspects of being in business is managing money and how & when you spend your money.

 

But.

This discussion rears its ugliest head when … uh oh … you can see you are business sorry we arerunning out of money.

 

Let me be clear. Businesses rarely do run out of money completely … more often than not it is “I don’t have enough money to spend after “x” date.”

 

This is called ‘spending over time’ budgeting.

 

This is called ‘wrong way to budget.’

 

Budgeting should always be based on ‘spend money to make money’ running parallel to the unfortunate business truth … “you actually have to spend money to make money.”

 

I am tempted to refer to my ‘no formula’ post here because every business has an edge just as they <assuming it is actually a good idea> always have an opportunity … or opportunities. Using formulas when budgeting expenditures typically does not translate to edges nor offer real solutions to drive & create business. Formulas tend to say what has worked in the past which doesn’t often offer real solutions when discussing ‘we are going to run out of money.’

 

Suffice it to say that when budgets get limited <or you can see a zero balance on the horizon> and when a business comes to grips with the fact it is going to run out of money there are some hard choices to make.

 

The easy choice? Stretch it out and hope <the business is maintained or some additional funds come your way>.

 

The difficult choice? How do I spend it now <or within a specific window of time> to drive up awareness/sales/connections so that I make an impact.

 

While it sounds flippant to say you have to spend money to make money and it is even more difficult to explain “there is something worse than not having any more money to spend.”

 

Uhm.

What is worse?

 

Spending the money you did have … poorly.

 

There may be nothing worse in business than wasting money. And I don’t mean on frivolous expenditures <which is wasteful & stupid> or on ‘legacy programs’ <which is usually wasteful or at minimum ‘less than efficient’> … but actual well intended planning and wasting the money in doing so.business old white guys

 

That said. The most common poor budgeting strategy is … well … time based.

 

“If I don’t budget wisely I will use up my money by <insert some date>.”

 

 

Well.

 

That is budget planning based over time – “how can I spread my money out for as long as I can”.

 

I don’t have enough time to list how many things are wrong, and will go wrong, spending your money this way.

 

Basically you run the risk of spreading yourself so thin you don’t make any impact … which defeats the purpose of spending money.

 

The purpose? <just as a reminder>

 

To make money.

 

But, remember, you have to pull the trigger on spending – having money does you no good if you do not actually spend it. A business should demand money spent to show how it creates money <some high falutin’ marketing experts will toss around “ROI” here>.

 

In startups it is to receive additional funding.

 

In some businesses it is that your budget is based on % of sales.

 

In other businesses it is simply that the business has some financial objective <sales, profit, widgets, etc.> and you are spending to meet and/or exceed it.

 

And while everyone in business knows this, for some reason, time takes on an extraordinarily high importance in planning. It becomes “I have 12 months to use this money” rather than “how do I spend the money to make the most money.”

 

Yes.

Sometimes those things coincide.

 

But more often than not … under the scrutiny of truth … they do not.

 

I got very lucky early in my career in that I was mentored and worked with some excellent ‘difficult money decision’ business people <note: I was lucky in general with regard to mentors and people I could watch>.

 

management Businessman-writingFor example. An early difficult money decision.

 

It was a national brand with a long purchase cycle product <think maybe once every two years for the bulk of their purchasers>and a pretty high seasonal purchase skew where a high % of sales occurred in a three month period … and a budget that didn’t support an annual national effort.

 

The senior brand manager decided to split the country into thirds … and only provide significant support to one of the thirds each year <rolling through the nation over a three year period and then starting over>.

 

<note: there were some promotions and store support aspects and a couple of national cable events to maintain the other regional thirds while the other third’s effort was in place>

 

 

I gotta tell you.

 

That initial presentation to his senior management and sales was … well … harrowing & painful. But we got research onboard and we had a sales projection team and we showed everyone how this would actually increase sales on an annual basis and how much it would net out for the company at the end of the three years … and how it would provide a national foundation from which the following three years should see even higher growth projections <it would actually flatten out in years 7, 8 & 9>.

 

Without going into details the decisions were made to sacrifice inefficient ‘throwing money away spending’ for more impactful ‘spend to make money’ strategy & tactics. It was creative spending to create sales.

 

Not popular. It looked risky.

And it worked … better than even planned.

 

 

And from that point on in my career I continued to propose & debate some fairly unpopular expenditure strategies … because I was focused on spending money to make money.

 

Look.

 

I am not suggesting this is easy.

 

Money & budget decisions can make or break a career. Shit. They can make or break a business.

 

You get judged on how a budget is spent. And you should. But the judge is often harsh and the verdict can be damning.

 

Because of that judgement … money, and the judgement that comes along with it, can make even the most even keeled business person … well … lose sight of reality and enter into some imaginative world in which dollars get spread out in a way that appears to cover time … and yet, in its worst form, does nothing over time or, in its least harmful form, does less than it could over time.

 

To be clear … a spending over time planning process takes incredible imagination.

 

To be clear … spending money to make money is all about reality <sometimes harsh>.

 

Again.

 

I am not suggesting this is easy.

 

It is incredibly hard to have a start up business spend all their discretionary money in a two month period <to get results to point to>.

 

It is incredibly hard to have a business stop doing all the small efforts for 6 business inclusivenessmonths and do one bigger effort in month 7 & 8.

 

It is incredibly hard to have a business “go dark” for any stretch of time.

 

Deciding when to spend and what to spend and face the fact that your plan means you will have used up your money <so there is nothing to use in case it doesn’t work> is incredibly hard.

 

That said.

 

I am a business guy.

And I like to increase business <to maintain it>.

 

And I have a nasty habit of wanting to do the right thing and not the popular thing or the thing that would ‘make the sales people happy’ or ‘look good to the board.’

 

I like to spend money to make money.

 

And you know what? That is about the most simple planning strategy anyone can use … because it works.

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Written by Bruce