Running a small business requires a number of skills. Managers and owners must be able to build relationships with clients and business contacts, and knowing which products and services to sell is essential. However, perhaps one of the most difficult aspects of running a small business is knowing where to invest and how much to spend. While some advise keeping a healthy bank account, others believe in aggressive investment. Here are some of the pros and cons of both spending and saving.
The Benefits of Being a Miser
While the word miser has a negative connotation, most people value saving money for difficult times. These advantages occur in the business world as well. For small businesses, borrowing money isn’t cheap, and it may not be possible if money is needed quickly. By focusing on growing your company’s bank account, you can ensure that you’ll be able to weather difficult times.
Being miserly also has another benefit: It gives your business the means to jump on big opportunities. By saving, your company will have a large fund to use for future investments. While long-term, stable investments are essential, it can sometimes help to make large expenditures when the time is right. Being miserly lets you take advantage of unique opportunities.
The Disadvantages of Being a Miser
Perhaps the biggest disadvantage of being a miser is risking long-term growth. Any money that sits in a bank account is money that is gaining little in terms of interest, and money in a bank account is not actively improving the business. Being a miser has an opportunity cost, and this cost may be too much for small businesses.
Being miserly can also be paralyzing. While it is important to set aside an emergency fund, having the mindset that a company’s bank account should always grow can lead to stagnation and a failure to grow as fast as possible. Businesses need to grow in order to thrive, and those who fail to invest wisely risk falling behind competitors and losing customers.
Conclusion: What’s the Right Path?
Fortunately, there are a wide range of strategies available for deciding between investment and saving. Some experts recommend an aggressive approach where all money is spent toward investments. Others advise saving as much money as possible to keep the business afloat in case of emergencies. For most businesses, choosing a moderate path is likely the safest bet, but it is important to evaluate your company’s specific needs to determine which strategy is most likely to succeed.
Which is the best approach in your opinion? Is being a miser, wiser?
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