Expenses: a cost or an investment?

No business can run on fresh air alone.

Do you see your expenses as a cost to the business, or, an investment in the business? Your answer to this question can have a profound influence over your decision-making and you might not be aware of just how strong and pervasive that influence can be. For many businesses the largest expenses are typically staff and rent. That’s a given and hopefully you know that your staff are your best investment. So let’s look at some other expenses.

Consider, computer expenses. A cost or an investment?

OUR VERDICT: computer expenses are a cost when you are using outdated, unreliable hardware and the wrong software. It means your business could lose hours of productive time every week. That’s hundreds of hours every year. Lose time and you lose money. Lower productivity is the invisible cost of skimping on cheap hardware and software. In contrast, quality well-maintained computer equipment with the right business software systems is one of the most important investments of any business. Of course there may be a price to pay upfront yet over time it will pay for itself in the form of increased efficiency, reliability and functionality. Obviously you won’t see a line item on your Financial Statements for ‘Productivity’ but if you want to improve your bottom line, increasing productivity with better technology is a very good place to start. For our business, the money we spend on computer equipment and software is definitely an investment in the business.

What about advertising: a cost or an investment?

OUR VERDICT: Advertising is a really broad term and whether it’s perceived as a cost or an investment depends on how and where you spend your money. If you have a strong, well-researched marketing strategy that will actively target your intended market, we’re more likely to perceive that as an investment. With any good investment though, you need to make sure you measure its success.

If you’re a little-known service-based business spending money on a 5,000 leaflet letter-box drop we generally see that as a cost. It relies heavily on the random hope of someone needing your service on that particular delivery day. By day 2, your leaflet is most likely in the recycling bin. Unless you have a well known brand there wouldn’t be many householders who hold on to your leaflet or even remember your name when they may need your product or service some time later. We believe the best that you can hope for in this scenario is to raise a little bit of awareness of your business, but only for a very brief time.

Some small business letter-box drops can be quite clever and a good investment but we think they are rare. One very smart example we’ve seen is a real estate agent that goes around the suburb taking a photo of everyone’s house then delivers a calendar to every front door that includes a nice photo of your home along with with their contact details. It’s a photo of your own home, wouldn’t you think twice before throwing it away?

What’s your answer: are expenses a cost or an investment?

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