From an accountant’s point of view, advertising is not an investment. Advertising is an expense. The cost of advertising is an operating expense. It is listed right there on the company’s profit and loss statement. Advertising is not listed on the company’s balance sheet.
There are many investment opportunities available to a business owner. You could invest your money with the bank in a Money Market or savings account. You could invest your money in a Certificate of Deposit or even Treasury Bills. These are very safe investments but they don’t pay very high dividends.
You could invest your money in corporate bonds and earn a slightly higher dividend but corporate bonds are not as safe. If you can tolerate more risk you could invest your money in Junk Bonds and earn an even greater return on your investment.
When you invest your money in stocks and bonds you are essentially turning the future of your money over to someone else. You are putting your trust into the management team of the company with which you choose to invest. They make all of the decisions about how to run that company. It is their decisions that affect the future value of your investment. If they make smart decisions you could see your investment grow. If they make poor decisions you could lose your investment.
Why not consider investing in your own company? When you invest in your own company, that money is considered a Capital Contribution. When you invest in your company you increase your equity in your company.
Investing in your own company is not without risk, but now you are in control. You get to make the decisions that can affect the future value of your investment. You make the decisions about your inventory and pricing structure. You make the decisions about your operating hours and customer service policies. If you make smart decisions, you can see your investment in your business grow. If you make poor decisions about your business, you could lose your investment. It’s just like investing in the stock market but instead of turning the future of your money over to someone else, the future of your money is now totally your responsibility.
Choosing how to market your business is one decision that is entirely up to you. It is an important decision because your advertising is essentially your invitation to the public. Your decisions about advertising affect the future of your business.
Thomas Jefferson once said “Cutting back on advertising to save money is like stopping a clock to try and save time”.
When you advertise, you incur an expense. The bill for your advertising is an expense just like the bill for your business liability insurance. People don’t like spending their money on insurance but they feel responsible to do so in order to protect themselves from the risk of running a business.
Trying to run a business without advertising is like trying to run a business without liability insurance. It is risky. Everything is at risk; your inventory, your fixtures, your years of hard work are all at risk because consumers won’t know who you are, where you are or what you can do for them.
While the cost of advertising is not an investment the awareness that the advertising creates about the business in the marketplace is an investment in the future of that business.
Successful companies understand the power of being known before you are needed. In other words the customer must know you before they need you. When a consumer has a need or a desire for a product or service, the first brand name they think of is usually the brand name they prefer the most. The vast majority of consumers say that when the need or desire arises, they are likely or very likely to go with the brand they think of first.
That doesn’t mean that the vast majority of consumers are already taken. Even in the category of products we use frequently, the percentage of people without a preference is remarkably quite high. That is good news if you are trying to grow your business. Those consumers have yet to find a preference in a wide range of common product categories. They could be your future customer is you advertise your business.
Advertising is not an investment but the awareness that your advertising will create in the market place is.