How to Know if You Can Afford a Big Investment as an Online Business Owner

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Are you thinking about making a big investment purchase to help grow your online business? It’s always SO exciting to visualize the growth of your business on the other side of the investment, but how do we know if we can ~~really~~ afford to spend that much money for those big-ticket items?

Here are a few examples of the fun, pricey things that come with owning an online business:

  • Working with a brand designer
  • Joining a mastermind
  • Hiring team members
  • Purchasing a course
  • Joining a group program or membership
  • Getting a website upgrade (or purchasing a website template!)
  • Sending out gifts to spoil your clients
  • Paying for marketing or ads

So how do we evaluate our business finances to determine if we have the cash to pay for what we want? Think – Past, Present and Future!

Past

What’s happened historically?

Ready for me to show you exactly what I do on my 1:1 calls with clients when they ask if they can afford something? For the purpose of this example, let’s say you want to hire a team member!

Do me a solid and pull up your Profit & Loss Report for as far back as you can set the dates. Once you’ve got that in front of you, take a look at your bottom line profit number across all of the months. Note which month you had the lowest profit, and also note the average profit across all of your months.

During your lowest profit month (preferably just over the past 12 months), would you have been able to pay this team member, while still saving for taxes and taking an owner’s draw? How about on average – would you have been able to afford it?

This is a great exercise to materialize paying for this expense by looking at real + accurate data from your books!

Present

What d’ya got in those cash reserves?

I am a huge believer in the Profit First method. This method is a cash management system that allows you to look at separate bank accounts for your Operating Expenses, Tax Savings, Owner’s Pay, Income and Profit.

If you use the Profit First method, let’s take a peek at your Operating Expense (Opex) and Profit bank accounts.

In your Opex account, do you have enough to sustain your business over the next few months if you didn’t bring in any money? Ideally, there should be about 3-6 months worth of expenses saved up in this account.

But when we’re looking at the Profit account, the question is more simple: does the balance cover the entire investment expense?

Future

What are your projections over the next year, six months, or three months?

This sounds more complicated than it actually is, so let’s make it plain and simple. Fire up a spreadsheet, or pull out a pen and paper if you need to uncomplicate it that much.

Start with your known revenue over the next three months: How many contracts have been signed with payments due during that time? How much recurring revenue can you count on (if you have payment plans or membership income)? Write it all down and sum it up by month!

Then write down all of your recurring expenses! I find it easiest to divide my expenses into two categories: fixed and variable.

Fixed expenses are the expenses that we know happen every single month, and the amount is usually the same. Here are a few examples of fixed expenses:

  • Training & education (i.e. a group coaching program)
  • Software
    • Client Relationship Management (CRM) system (Dubsado or Honeybook, etc.)
    • Zoom
    • Loom
    • G Suite
    • Email marketing software (Flodesk or Convertkit, etc.)
    • Zapier
    • Social media scheduling software (Later.com or Planoly, etc.)
  • Team members who are non-hourly with a fixed rate

Then write down all of your variable expenses! Here are some examples:

  • Stripe / PayPal fees
  • Client gifting
  • Team members who are hourly
  • Font purchases 😉

Obviously, there are many other expenses outside of those, but the purpose of this exercise is to determine your normal and regular recurring monthly revenue and expenses!

Once you’ve got your total revenue and total expenses over the next three months, analyze what your profit will be and see if there is wiggle room for your big investment. Don’t forget to factor in saving for taxes (~25-30% of your profit), and paying yourself!

So between your Past, Present and Future analytics, hopefully these are some helpful ways to gain confidence in your purchasing decisions!

As always, feel free to reach out to us @madisondearly on IG if you have any questions about any of this info. I’m just a DM away from helping you make big moves in your online business! ❤️

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