Unraveling the Myth: “Spend Money to Make Money”
The age-old adage, "you've got to spend money to make money," is often used in the business world as a motivational tool to encourage businesses to take risks and spend more on marketing, new products, and other investments. But many businesses recognize it’s more complex than that.
It's true; capital is required to start and run a profitable legal firm. However, "spend money to make money" is overused and implies that indiscriminate spending will invariably yield greater returns, which is only sometimes true. This idea can lead to rash decisions and an ill-advised approach to money management. It can encourage excessive risk-taking, imprudent investments, or unnecessary spending. As attorneys, we've all spent money where we've never seen a return, but we’ve also spent money on our businesses where we've seen a great ROI.
Let’s take a look at a few high ROI spending categories we think deserve your attention.
1. Cash Flow and Profitability
A crucial element often overlooked in our businesses is cash flow. Therefore, wise spending should emphasize balancing outgoing costs and incoming revenue. Companies that mismanage this balance often face insolvency, even if they are, in theory, profitable. Investments that bring in greater cash flow and can "pay for themselves" upfront or over time are worth considering.
What investments can help cash flow? Focus on key areas like bookkeeping, payroll, accounting, finance, sales, and marketing. When you invest in these areas, just be sure to schedule regular meetings to continue assessing key performance indicators in each area to make sure they are actually providing the ROI you expect.
2. Risk Management
Risk management is another essential category of high ROI. Successful investors understand the importance of diversification and mitigation of risk. While running a business involves some risk, taking unnecessary or uncalculated risks can result in catastrophic losses. Ensure you have up-to-date insurance coverage, legal contracts, and internal- and external-facing company legal documents.
Automation can help streamline current employees' workload and curtail frivolous hires, saving your firm time and money.
Record retrieval can be a lengthy process for many law firms and is often inefficient, costly, and time-consuming. iCopy's concierge, white-glove service along with innovative internal systems helps firms automate the process of record retrieval without sacrificing accuracy and timeliness. In addition, the revolutionary Nimbus portal allows clients to view document status easily. Customer service is a high priority.
If your record retrieval process is overdue for an upgrade, iCopy can provide your firm with the tools it needs to include. Get in touch with us today to learn more.
Automation has another long-term benefit which is scaling. Building for tomorrow. Dan Martell, the author of Buy Back your time, says it well when he says, "100 million dollar companies weren't built on 10 dollar tasks."
While "you've got to spend money to make money" contains a grain of truth, it's far from universal law and can often mislead people into poor financial decisions. Instead, a balanced and cautious approach that values cash flow, risk management, and automation, and scaling can often prove far more profitable in the long run. Focusing on high-return investment areas will increase revenue and lower risk, leading to greater profitability in the long-term.