Is money tighter for your business? Or maybe the cash is there, but you’re being more cautious because you don’t know when this economy is going to turn around and what deals might come out of these current recessionary times.
There is one very big plus side to economic downturns like this: You get an opportunity to catch your breath and look at what’s working and what’s not. You can look closely at your systems and where your money goes. You get to calculate the ROI.
ROI means return on investment. Before you make any investment, chances are you look at the ROI on it first. How much return will you get on an investment and how long will it take to get it? That’s ROI.
ROI is Return On Investment.
Spend less time – ROI goes up. Make more money – ROI goes up. Increase efficiency in your operation – ROI goes up.
An increased ROI will usually require an initial investment of time or money, but it will always return MORE in the long run.
Did you know you could increase the ROI on your advisors? Please go to DKTaxServices and watch my 12 minute video for tips on how to turn your professional service expenses into investments that increase your ROI.
Investment or Expense?
Every time you write a check, ask yourself: Is this an investment or an expense?
Pay a salary to an employee just because you need someone in that position. What is it? Expense.
Hire an independent contractor to subcontract a project that you get paid back in passive streams of income. What is it? Investment.
Creating ROI requires a conscious decision. Ask yourself: How will this money I’m spending come back to me?
Let’s say you have an employee who does the bookkeeping for your company, but you never review the financial statements and just do whatever your CPA tells you to do at the end of the year. Investment or expense?
On the other hand, let’s say you have your bookkeeping prepared so that real, meaningful reports are produced every month. You go through those with an expert who educates you on how to read a financial statement so you know what is working, and what is not. You cut your losers quicker and are able to put more time and energy into the winners. Investment or expense?
Being more careful with your money now doesn’t mean you stop spending it. It means you stop blowing it on expenses and instead start investing it so that you increase your ROI in all parts of your business.
One more tip: Invest with advisors who increase your ROI. Learn more in my 12 minute video at DKTaxServices.com
P.S. ROI actually means the return (income) you make from the investment, typically calculated over an annual time period. So, if you invest $5,000 in a tax strategy with me and I save you $10,000, you have had an immediate return of your capital and an ROI of $5,000/$10,000 * TIME. That calculates your annual return. The faster you act, the higher your ROI.
P.P.S. Oh, here are the answers to the two examples above. If you hired a bookkeeper and never learned how to use the information you received: It’s an expense.
If you hire a bookkeeper and learn how to use the information to make your business work better: It’s an investment.