The four questions to ask yourself before spending money towards starting a business

Understand what matters to you most as a person

@eliotkellyofficial

Before spending money on your business, you will want to validate your products or services. You can do this in several ways including online and offline sampling and testing and through research. You can also validate your product/service by using Google Trends, Quora and Google Reader for example, to determine the popularity of the keywords associated with your business idea.

You can also promote your products/services on social media, in groups and forums, or by buying a physical sample for example, and trying to sell it in person. One of the benefits of this appraoch is that a person can gather a real-time demand estimate for their product or service prior to taking the ‘leap.’

In today’s article we will focus on the four questions to ask yourself before spending money towards starting a business. Many of the ideas we will share and review can also apply and benefit existing business owners. The ideas that follow assume that the entrepreneur has sought to understand the best time and market in which to launch his/her business idea.

Do I need a particular thing today or can it wait until later?

At Stanford University in the 1960s, Walter Mischel and his students used marshmallows to determine how well children could embody and hold off for a better option in the future. Kids were given the choice to eat one marshmallow now, or wait 15–20 minutes alone and receive a second marshmallow, simply for being patient. Straightforward to understand, but not exactly easy to execute.

The results and follow-up results have been widely published and circulated ever since, documenting that the kids who delayed gratification, have done better in virtually all areas of life ever since. The children who waited for the second marshmallow abused substances less frequently, achieved better grades, experienced greater health, and proper weight ranges, built stronger social skills, and had a smoother time handling stress. So, what does Mischel’s experiment offer us as it relates to business spending: Patience is a virtue in and of itself. Patience and qualifying business spending by asking, “Do I need a particular thing today?” gives us a metric by which we can separate need and want.

Is it worth it?

Delayed gratification is powerful and essential. The ability to delay gratification reveals emotional intelligence and helps us to appreciate the value of a potential business purchase. In our Cost Of Success seminars, we share that before a person can appreciate the value of a thing, they must first understand their own values. Values are qualities like honesty, integrity, creativity, love, and commitment. Here is a quick exercise that you can use to better understand what matters to you most as a person. This exercise will assist your business as a business reflects the values of the business owner.

1. Give yourself a few minutes with a pen and paper and write down at least five values that you hold close and dear to you. Number them one to five.

2. Take out those that you feel are not genuinely yours and could have been adopted from someone else. Replace any that you may have removed and make alterations as necessary until you have five you are certain about.

3. Swap them around until you have them in order of importance so that the one at the top is a value you cannot live without.

4. Review and consider the top three. These three are your dominant values and determine your life.

Now you know the framework that has guided past decisions. The benefits of this exercise also lie in understanding that if these values have consistently given you poor results, they (the values) can be re-aligned or radically changed, in some instances, to create different results. Our ability to understand our own values helps us during our day-to-day business and personal affairs. What a thing, place or person is worth is relative.

Now that you have identified what those non-negotiable are, you can evaluate your business spending on the three factors that complete the equation of how much something may be worth: Cost, utility, and enjoyment. If you can get a ton of use out of something, you enjoy it every time you use it and it costs a relatively small amount, it is going to be worth it.

If I commit myself today, what if my circumstances change?

Whether change leads to a positive or negative experience in our lives depends on our attitude towards it. Change is inevitable and attitude is everything. The most important attitude for financial success is long-term thinking. Before spending money towards starting a business, successful people think a long way into the future and adjust their spending behaviours to assure they achieve their long-term goals.

Harvard University conducted a study in the 1960s where they studied the reason for upward socio-economic mobility. They were looking for factors that would predict whether an individual was going to move upward and be wealthier in the future than in the present. They finally determined that there was only one key attitude that mattered — ‘Time Perspective.’

The question of committing today in the face of inevitable change requires us to step back and be realistic about the long-term implications of spending on a particular business asset today.

People with short-term perspective, which we alluded to when we discussed the concept of delayed gratification, only think about fun and pleasure. Short-term thinking is synonymous with the irresistible tendency to spend every single penny and everything that can be borrowed.

Long-term thinking, on the other hand, is synonymous with discipline, planning, and financial independence. Instead of buying on impulse, put off buying decisions for a day, a week or even a month. This one tip can change the way you spend money and improves your net worth immediately.

What are the opportunity cost?

You cannot have everything without losing something. People make decisions by comparing the perceived cost of option A to that of option B. When clients share their business challenges with us, it is something that we take extremely seriously and in confidence. We are committed to their success and are aware that they could have chosen a competitor to help them solve their problems. What separates our services from the pool of average business coaches in the market is our ability to place ourselves in the shoes of our clients and dedication to creating and adding value.

Many aspiring entrepreneurs were taught that success is good, and failure is bad. We teach and train that entrepreneurs must be willing to pay the price upfront to be successful. Our robust approach to the efficient allocation of resources includes an awareness that business spending, specifically at launch and obviously throughout the businesses’ life cycle, includes more than physical cash. We advise that entrepreneurs be prepared to miss out on some family events, parties, travel, and a list of other agenda items that may be determined tradeable. These are all costs. Nothing in life is free.

We cannot always get what we want at the exact moment we want it. When our values are clear, we can effectively assess utility, cost, and enjoyment.

Keep your eyes fixed on what you desire most and be prepared to pay the price, while being aware of the opportunity costs. Stay true to your vision and remember that it is the dedication you show daily towards your desired outcomes that will make all the difference in the end.

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Eliot Kelly is recognised as a serial Entrepreneur, and has been featured on CNN, BBC Three’s Be Your Own Boss and an extensive list of magazines and articles.