"You have to spend money to make money."
We've all heard it. We all know ways in which it is true. If you start a delivery service, you need to buy a van. Your product depends on that purchase. You are spending money to make money.
But it isn't always true.
Money in the bank is static. It's depreciating — moving backward in value as inflation eats away at it. But money spent on bad investments is just... gone.
How do you know when you really have to "spend money to make money?"
Let's look at three P's: People, Products, and Perception.
First, people. Businesses invest in people every day. It's called payroll. But investment in people doesn't stop with payroll. Comfortable and happy people are more productive — notably, more sustainably productive — than their uncomfortable, unhappy counterparts. Money spent retaining the best workers and fostering their success is not a waste.
What about products? Whatever you do for work, ultimately you provide a product to someone. Can it be improved?
Suppose we can improve our product through investment to charge more for it, or sell more of our product more efficiently, that investment may be worthwhile. Consider the input and the output. If your cost to improve the product is less than what you can stand to gain, it's good spending.
Finally, perception. It matters. Wearing coveralls is acceptable for a mechanic but not for a banker. Suppose your business doesn't project authority, reliability, or whatever other quality it must to succeed. In that case, it's worthwhile to invest in changing those perceptions.
Aligning your spending with these three principles will not guarantee fiscal responsibility, but it will help.
You have to spend money to make money, it's true. Just don't waste it.