YOU’RE NOT SPENDING TOO MUCH, JUST SPENDING STUPID (A STRATEGIC SPENDING FRAMEWORK)

read on smbfinanceos.com​

Joe had a great year.

His regional HVAC company crossed $8 million in revenue for the first time. Margins were solid, reviews were glowing, and for the first time in a while, there was real breathing room in the bank account.

Flush with optimism and a little adrenaline, Joe decided it was time to level up.

So he did what a lot of owners do after a big year: he started spending like a bigger company.

First came the rebrand: new logo, new website, and new vehicle wraps cost him $85k. Then came custom video training modules for the team, a fancy scheduling and dispatch system, and a few consultants to build a “scalable org chart.” Total: another $100K, easy.

Was any of it bad? Not necessarily.

The problem was that none of it generated revenue. And none of it made the business more resilient.

So when a new competitor came into town offering cheaper service, it started eating into their market share. Suddenly, Joe found himself tight on cash. The growth hire he’d planned, a seasoned sales lead who’d grown a similar company in the next state, had to be put on hold. Then cancelled. Then replaced with a “maybe next year.”

Joe didn’t spend recklessly.

He spent without strategy.

Business owners don’t go broke on purpose. They go broke confusing momentum with margin and spending with strategy.

This fictional, but close to the truth, story frames the difference between intentional investment and expensive distraction.

And too often, business if fraught with these types of decisions.

To frame this out, let’s talk about the types of spend in a business, then dig into an alternative approach.

FOUR TYPES OF BUSINESS SPENDING

If you’re going to manage capital well, you need to know what kind of spend you’re looking at. Most expenses fall into four buckets:

1. Essential Spend: Baseline operating expenses. This is payroll, rent, insurance, software… things that keep the lights on.
2. Reactive Spend: Unplanned spend triggered by urgency, surprise, and/or emotion. Sometimes this spend is necessary, but even when so, rarely is it optimized.
3. Unintentional Spend: The forgotten stuff. Old tools, auto-renewed contracts, and duplicate services. Slowly draining the margin while no one’s watching.
4. Strategic Spend: Thoughtful, ROI-oriented, and tied to your long-term objectives. Funded from strategic cash and not from leftover operating surplus.

We’ll talk about the unintentional type spend in the near future, as we start developing AccountingOS.

But for now, we’re going to focus on reactive spend and strategic spend.

Strategic Spend isn’t defined by the size of the purchase. It’s defined by the intent behind it. If we were to create a strategic spend formula, it’d look like this:

• Intentional = part of a plan or deliberative decision, not a hunch.
• ROI-Oriented = the expected benefit is quantified or at least directional guided by a return
• Strategically Aligned = tied to long-term business objectives or core initiatives.

Let's not get it wrong: this isn’t about making everything get a dollar return. ROI can be soft or hard return. Cultural type returns are allowed. So don’t trip.

But that soft, cultural return should be intentional and tied to your strategy.

That random trip you chalk up as “cultural ROI” isn’t it.

THREE TYPES OF STRATEGIC SPEND

I like to think of strategic spend in three categories: revenue-generating, risk-reducing, and efficiency-boosting.

REVENUE-GENERATING

Spend that’s designed to drive top-line growth. You’re betting that every dollar in will produce more dollars out.

Here are some examples I came up with (aided by AI):

• Hiring a dedicated salesperson for an underdeveloped region
• Running paid ads after testing organic traction
• Expanding into a new service line based on customer demand
• Investing in SEO or content that targets high-converting keywords
• Launching a referral program to increase average customer LTV
• Partnering with a lead-gen firm for outbound support

With these, it’s important you measure the result. If you’re seeking a true positive ROI, make sure you’re measuring the ROI. Choose metrics that align with what you’re implementing so you can do a post-mortem and see how good (or bad) your assumptions were.

RISK-REDUCING

Risk-Reducing spend is meant to protect the downside or prevent a bigger problem down the line. These investments don’t always drive revenue, but they help you keep what you’ve built.

Some examples of this would be:

• Upgrading cybersecurity after signing larger clients
• Adding professional liability insurance as you scale service offerings
• Creating an employee handbook and HR policies before hiring
• Reviewing customer contracts with a lawyer before expanding nationally
• Building redundancy into critical systems or key-person dependencies
• Diversifying suppliers to prevent operational choke points

It’s often easy to ignore these because they don’t lead to more revenue. But, more stability allows you to avoid setbacks, which in turn fuels growth.

Building a resilient business isn’t sexy, but it will be good for your stress levels and health.

EFFICIENCY-BOOSTING

Efficiency-Boosting spend increases output without a proportional increase in input. These investments help you do more with the same or do the same with less.

Examples:

• Implementing a project management system to improve team throughput
• Automating invoice and billing workflows to reduce admin burden
• Training frontline staff to reduce rework and mistakes
• Migrating to software that integrates with your core tools
• Outsourcing non-core functions (IT, HR, AP/AR) for cost efficiency
• Building dashboards to reduce time spent digging through data

In some ways, this return is similar to the risk-reducing spend. You’re often not seeking a direct growth ROI, but should be able to find a measurable reduction ROI. Measuring time savings, margin improvements, or throughput can tell you concretely if these types of strategic spending decisions are profitable.

So, how do we evaluate this spend?

EVALUATING STRATEGIC SPEND

You don’t need to review every line of your GL. Just apply this process to big decisions:

1. What are we trying to achieve?
2. What type of spend is this? (Revenue, Risk, Efficiency?)
3. What’s the ROI score?
4. Is this the best way to get that return?

To get an ROI, rate each spend from 1–5 on:

• Expected Return: How much impact?
• Certainty of Return: How confident are you?
• Strategic Alignment: How well does it fit your long-term goals?

Use this score to prioritize limited capital toward high-impact initiatives. Doesn’t have to be perfect—just more thoughtful than guessing.

Taking into account the above questions and score, you have a simple, straightforward framework to help make these decisions.

Some additional optional questions to ask:

• What happens if we delay this 90 days?
• What happens if we redirect this money elsewhere?

This isn’t budgeting every dollar. It’s intentionality applied to your biggest, most important investments.

ACTION STEPS

Your spend should tell the story of your strategy.

Joe’s story? His spending didn’t tell that story. It told a story of momentum, of optimism, of reacting to success with complexity instead of doubling down on what was working.

The best capital allocators don’t just avoid dumb decisions. They use capital to turn confidence into clarity and clarity into growth.

So the next time you’re staring at a bank balance and thinking, “Can we afford this?” replace it the question “What return will this create?”

If you’ve got a few major initiatives floating around in your head (or worse, already in flight), run them through the ROI matrix.

You’ll find that some aren’t bad ideas. They’re just bad right now.

That’s the essence of CapitalOS.

Spend with purpose.

Invest with clarity.

And never let a good year put you in a worse position.

Next week we’ll look at the relationship between debt and capital allocation.

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Thanks for reading–see you next week,

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