Spending Money in a Slow Economy

You've got to spend money to make money, as the old saying instructs us. But when the economy is slow, should a business spend money or hold on to its cash?

A story from Carlisle, Ohio, about a salon owner seems like she's at the mercy of a bad economy all around her. Christina Brown was quoted in the Middletown Journal saying people are going longer between hair cuts. Since she's a new business, many people don't know she exists. Her challenge will be building low cost, word-of-mouth promotions.

An owner of a privately held apartment management company, Robert Barbera, decided it was better to spend money and make arrangements with his tenants than face the prospect of empty apartments.

He chose to spend money on select upgrades in his 26 apartment buildings in the Pasadena, California area and allow the property managers to negotiate favorable terms with tenants. The result was there were only four vacancies out of over 500 total units in a recent rental month. That's a 1% vacancy rate in a slow economy - Southern California being no exception.

But if you're a business owner or advisor, consider these facts before spending money.

Will your spending produce a return - and if so, what return do you expect?

Keeping one tenant in an apartment for Barbera Properties equals an income of $ 1,200 to $ 1,600 each month - depending on the size of the unit. Maybe an upgrade in a unit would cost $ 1,000, but keeping a tenant satisfied means the unit could be occupied for another several months to a year.

So it makes sense in this case to spend money to maintain or generate cash flow instead of having vacant units.

How long has your business currently been in operation and what is the reputation?

Barbera Properties has operated for many years and has developed a strong business model that includes responding immediately to tenant requests. While problems always develop, the company has a history of satisfied tenants - or customers. So it also has a strong word-of-mouth marketing base.

If your company already has a strong reputation, then capitalize on this with

So what about your company?

1. What spending issues do you face? A new web site, employees, equipment purchases?

2. What cash flow issues are you facing? Unpaid invoices, incomplete projects?

3. What industry challenges loom ahead? Target markets unwilling to spend on your services or products?

Now scan the horizon for existing opportunities.
Certainly cutting expenses, a defensive mode, is necessary at times. And that may preserve assets and cash flow. But finding opportunities is what generates income to sustain a business.

So if you spend money to make money, can you select the most strategic places and can you project positive results?

Now determine what the chances are of an investment not being fully realized.

If an opportunity far outweighs a challenge, then go ahead and make strategic expenditures. A well-planned decision isn't a gamble. And it could result in greater revenue and, ultimately, profitability.