Want to know when to spend money on your business for the best return?

Dharmesh Shah at OnStartups recommends asking these questions first:

1. Does it provide direct customer value? Shah's talking mainly about software companies here, but to give a very simple example, if you're running a hamburger stand and want to provide cheeseburgers, buying cheese would be an expense that would pride direct customer value. Redecorating the break room might lead to a happier work environment and a better product, but it does not provide direct value. In the beginning when money's tight, buy the cheese.

2. When will you get the payoff? Shah argues fixing a bug in your software so your customers don't freak and go with a competitor is a better investment in resources than spending time and money to go to a technical conference even though you'll meet people and gain some additional knowledge.

3. Is it a one time expense? Designing a logo is a once and done deal while renting a big office when you could be working at home is an ongoing expense. Hint: The logo is the better investment.

4. How long will the payoff last? The logo expense will keep paying off (though I'd argue it's also not direct customer value. See point one.) while advertising in most cases will only pay off short term. (*Note: Internet advertising may be a special case here, however, especially PayPerPost if it stays on a blog and keeps turning up on searches indefinitely. Think viral advertising.)

One of Shah's main points here:

Bootstrapping does not mean being a cheapskate! Even in a bootstrap startup, it is important to spend some money -just in the right places and at the right times.

Another:

In order to live to see the long-term you have to survive the short-term. Put simply, bootstrap startups rarely have the luxury to make long-term investments in the early stages... Of course, all this changes once you actually start making money and get to cash-flow positive. That is the time to start being more thoughtful about long-term investments.