Every expense in a business has to buy something: more money back than went out, and the production of whatever it pays for. When you spend and cannot say how much comes back, you have bought a hope.
Bean theory
The source explains this with an image of beans. Money allocated to an activity is like beans: so many go out to it, and more beans have to come back. The allocation buys two things, more money than was paid out, and what the activity produces.
It sounds childish, and that is exactly where the image gets its force. You send beans out, and you need to know how many beans return. When the answer is that you do not know, what went out was a hope.
The source adds one line to the image: “A small sack of beans will produce a whole field of beans.” Every allocation is made with that thought in mind.
Suppose a business coach pays $900 for an advertisement and has no idea how many enquiries it brought. Seven months in a row she keeps paying for it.
Then she starts asking everyone who contacts her how they found her. After two months she drops two channels and doubles the third.
Or take a designer who buys an annual software subscription for $2,100. She uses it on three projects that paid $31,000 between them. Those are beans that came back.
Needing something is no reason to buy it
On this point the source is not polite. A request for money that opens with a statement of need is met with a yawn, unless it is followed at once by a valuable product or an income that is realistically planned and in plain view. Money, according to the source, goes against production already proven and income you can expect.
When you work alone, you ask for the money and you approve it yourself, which is where the difficulty starts. The question worth running through your head before any purchase is what it produces, and when. Asking whether you need it helps much less.
Suppose a photographer buys a $3,000 lens because he feels he needs it. He uses it on two shoots in a year.
Later the same photographer buys $1,200 of lighting, after three clients have already asked for work that requires it. The lighting pays for itself on the first job.
A claim that a purchase will improve the quality of the work does not answer the question either. What you need to know is who pays for the improvement, and when.
The small-expense trap
The source gives one kind of spending a name of its own, and it is the most common kind in small business: two-bit financial planning. It is made of lots of little items, and not one of them will make you any money.
Here the source gives an example with numbers. Purchases of 25 shillings apiece added up to a plan worth £25,000. In another phrasing, you can put together a whole slew of small purchases that add up to thousands of dollars without making a single bean.
The booklet describes this as the kind of spending that kills small businesses quietly. Not one of these expenses is foolish in itself, and that is why they are hard to spot. The trouble is that they bring in nothing, and added together they come to a salary.
Suppose a freelancer has fourteen small monthly subscriptions. Together they cost $950 a month, which is $11,400 a year, and seven of them are not being used at all.
Or take a garage owner who buys small tools because they were cheap. After a year he has four identical wrenches and no diagnostic unit.
The rule that holds the rest up
The source gives a rule that sounds rigid, and it protects everything above it. The purchase-order system never breaks down. A person who bought without authorisation, because getting the authorisation took too long, pays for the purchase personally.
According to the source, whoever lets that system break will soon be spending more than they make. The source adds two words to it: it is a fact, and there are no exceptions.
Without this rule, everything before it stays a recommendation: the beans that have to come back, the question of what a purchase produces, and the small items that pile up. Every purchase that gets around the authorisation gets around all of them.
When you work alone there is no one to give you authorisation. So the booklet turns the rule into a waiting rule that suits a business of that size: a large expense is not forbidden, it waits.
The booklet gives this chapter two short exercises, a review and a decision, and the full rule is there with its examples.
Before your next purchase, ask how many beans it will return, and when. If you have no answer, what you are about to buy is a hope.
The booklet is general knowledge, not financial advice for your business.