Hello everyone, thank you so much for joining me today! I know you’ve all got pretty busy lives, so it’s always an honor to have you take time out of your days to read these blog posts. Today we’re going to talk about business spending, and how to do it the right way. How do we spend money in our business and do it the right way? That’s the question. I’ve worked with thousands of business leaders, business owners, and entrepreneurs, and in the process I’ve realized that there is a tremendous overlap in terms of how people view money and spending in their personal life and it overlaps in a major way into the business side of their lives.
With these observations in mind, I made some rough categorizations and wound up with three primary ones that describe how people typically are when it comes to business spending. I know that not every person is going to fit into these three categories, but they’re generally pretty accurate descriptions that most people will fit into. We’re going to look at these three categories on a personal level, and then see how they overlap into the business side of things. The first two categories we’re going to discuss are not the most ideal ways of going about spending, while the third is the ideal approach to spending in terms of how people spend money and what the correct way to do it is. The three categories are as follows: 1) Stingy 2) Lavish 3) Middle of the road.
Now, there might be some things people grew up with that contribute to the development of their way of spending. In many cases, it’s our culture, how our parents raised us, examples from family members, and other such things that cause it. There are many reasons why people are the way they are. That said, all three spending styles have consequences (some of which are quite negative) and it’s important to address those. So, without further ado, let’s get into these three categories and what they look like.
The 3 Business Spending Categories
A. Category 1
In this category, you have someone who is stingy, cheap, or, if you’d prefer to use different word choices, someone who is frugal in an extreme way. In their personal life, someone like this would be the type of person who goes to a restaurant and doesn’t tip, or at best tips the lowest amount they can get away with. They are always trying to do the cheapest thing possible and everything is on a very tight budget. It doesn’t matter where they go, if it’s a hotel they’re going with the cheapest option possible, if they’re going out to eat they choose the cheapest place they can find.
It’s always about saving the most amount of money that they can. In essence, everything is about a budget at all times. As for how this type of spending manifests in business, a person with this spending style is always going to free networking events, everything has to be free. And I’m not talking about someone who just started a business, because that’s normal to an extent when you’re first starting.
I’m talking about people who have been in business for quite some time but are still doing the same things, such as free networking, refusing to buy office space and using only free meeting spaces, using free interns to avoid having to pay an employee, relying solely on free advice, etc. Basically, they just aren’t willing to spend on anything.
After seeing this so many times with different businesses, I’ve noticed this spending style tends to yield similar results for everyone who uses it. I’d like to talk about the best-case scenario for a stingy spender in business and the worst-case scenario. The best-case scenario would be a highly-paid solo entrepreneur, basically someone who is just a one-person show and is making good income for themselves. By “good income” I mean the kind that allows the person to do well financially.
The worst-case scenario, which is unfortunately the likeliest one, would be that the person barely has enough money to live on, even after several years in business. So, they will get to that point where they’ve been in business a long time and they don’t have a business that has gone under, yet they don’t really have much more than what’s needed to pay their bills.
B. Category 2
In this category, you have someone who spends extravagantly. Spending comes naturally to these types of people, and they’re going big-time, all the time, with expensive cars, the nicest hotels, expensive trips to the best locations, and the priciest clothes. They’re always spending and are very flashy and showy. In business, this translates to the type of person who always has the nicest office, they don’t need a big office space or something that’s fully built out, but they get a huge office space that’s fully built out anyway. They want the most expensive everything, and this might include going for the priciest coaches and consultants they can hire.
The best-case scenario for a lavish spender would be an exploding business, the kind of business that brings in revenue that is so high that all these extravagant expenses don’t negatively impact anything. In other words, the income they’re generating is so great that their spending habits aren’t really a big deal. The best thing for this type of person would be to become an extraordinarily wealthy person who has an extraordinarily wealthy lifestyle and a continually growing business. Unfortunately, however, the most likely situation I see is that this individual will lose their business at some point. It might perhaps grow fast for a while, but they’ll get to a point where they just don’t make it because their expenses are higher than their revenue. They’re spending more money than they’re making, then they’ll go into some debt, and then eventually they’ll go bankrupt. Many times a person with lavish spending will have a business or two that goes under, but they just keep getting back up and starting again, until they figure out over time that lavish spending all the time is not the best way to go about things.
C. Category 3
Middle of the road:
This is the ideal, in my mind, after observing many different business leaders and owners. This is the spending style of someone who has a little bit of that stinginess and frugality that we talk about with the first style, but who also is willing to take a risk and go big with that risk during the right moment. Essentially, it’s someone who has characteristics of both the first and second categories. In their personal life, this person is willing to spend money, but only on the things that are really important to them. They have a plan, so maybe they won’t spend much money on a car, but they love vacations and so they just go big on vacations. That’s how the middle of the road type person is in regards to spending. In business, this translates to someone who will be extremely frugal on some business expenses. They’ll watch every dime in some areas and really track things, but at the same time, they understand the concept of getting a return on their investments. If there’s a marketing idea they haven’t tried before that they think is a really good idea and they think they’ll get a really good return on their investment, they’re willing to go big and go hard. And obviously they track it along the way, but they’re willing to invest quite a bit of money because they’re willing to spend in order to get their return.
The best-case scenario for this person would be large, sustained growth, leading to a very large and successful business over a long amount of time. However, the most likely situation for a middle of the road person is to have an extremely profitable business that runs well, has good people, and will continue to function at a high, profitable level as long as the entire industry doesn’t tank. If the entire industry goes under for whatever reason, because of the market or something like that, then obviously that business won’t make it. That said, middle of the road people will most likely experience longevity and a profitable business.
So, where do we go from here? What is your next action? Well, I think from here you need to take the following three steps:
- Self- evaluate- Where do you think you are? Which of the three categories do you think you most fit into?
- Observe- When you observe others and their businesses, where do you feel they fall on this spectrum? Have you observed anyone who has lost their business or has a struggling business that has been around for a while? If so, where do you think they fall on the spectrum?
- Talk to others- Have you talked to anyone else about this and gotten an outside perspective? Certainly that’s what we do as coaches at EntreResults. We coach people and help them see these blind spots in terms of how they view money that maybe they don’t see. Or maybe you have a friend who is willing to speak truth to you. The point is to get an outside perspective on how you view money.
Now that you know the 3 most common spending categories and which one is healthiest, you’ll be able to take a look at what your spending style is and figure out what you can do to develop the view of money that is best for your business. If you need assistance with business spending or anything else, be it sales help, sales coaching, or small business help in general, we’re here for you. So please give us a call if you need to and join me for the next blog post. In the meantime, go out and make it a better than amazing day!