As I talk to other business owners I’m often struck by the fact that investment decisions are made by the seat of the pants. “We just invested in a new company car.” or “We just paid $5000 for an email list for marketing.” While I’ve made quick decisions like this too (after all I am an ENTP), there is a simple technique that I use today that helps me think through this in a simple quantified way. Every time I make an investment I write What, When and How much on an index card and stick it above my desk. When I want to make another investment I pull the stack down, look at the active investments, my cash on hand and duration each investment has been outstanding. This allows me a chance to evaluate each investment and determine if they are paying back yet. If they are, I calculate a lightweight ROI and payback period and throw it in a folder. If I don’t think an investment is going to pay back, I mark it with a big red zero and throw it in the same folder. This way at the end of the quarter or year I can review which investments worked and which did not.
You may be thinking “shouldn’t we track these investments in accounting on the balance sheet?” Yes and no. For the larger items I do, for the smaller items I may choose to expense it but still want to track it. We also need to take into account what we can legally capitalize and what is practical to capitalize.
Hope this is useful!