Is Cost Cutting Now Costing Your Business Later?

Budgeting & Forecasting

In business and in life, there are two kinds of people. A folder or a scruncher. Pasta twirler or shoveler. A spender or a saver. Which one are you?

The savers of the world (probably folders and twirlers too) tend to see everything as a cost, struggling to see potential benefits of spending now for gains later. Spenders will throw money around left, right and centre, without a purpose or plan in mind.

As a business owner, it's obvious that spending it a must. But how do you know when and where to spend? The easiest way to wrap your head around the concept is to categorise your spending as either an expense, or an investment. Your aim is to be spending more on investments whilst minimizing expenses. In other words, put your hard earned cash into things that will get you a return and cut down on things that won't.

An expense is a necessary cost required to run your business, which is unlikely to generate any direct sales. For instance, bulk toilet paper for your scrunching employees.

An investment is a cost that you would expect some kind of return from, or ROI. I was watching the Gruen Transfer last week and panelist Russell Howcroft, the CEO of Channel 10, gave a great example of this. He explained that if the cost of an ad during footy finals was $150,000 and there are 3.5 million people watching, then that brand reaches an enormous audience for the cost of a postage stamp per viewer. Companies investing in the footy advertising would have done their homework and be expecting a much greater return on their initial investment.

The most difficult aspect of spending is knowing what's a smart investment and what's unnecessary. I've put together a list of six key areas to help you get started.

1. Marketing

A critical and necessary investment cost if you are trying to grow. If you can't afford to market then you shouldn't really be in business.

No marketing = doors are closed for any more customers or brand awareness.

Not a good equation to be writing.

2. Training and Development

The development of your staff is a critical investment for all businesses. In the past, I have seen managers reluctant to up-skill an employee in case they later choose to leave. I think of it like this: how detrimental could the impact on your business be if you choose not to up-skill your team?

3. Research and Innovation

Innovation is a vital link in the chain of success. It can create efficiencies in all areas of your business and give you a real edge against competitors. R & D doesn't have to be this large-scale exploration that costs millions of dollars. Channel Steve Jobs on a small-scale; things like investing in an employee's time to develop a better way of delivering products to customers. In addition, there are great government grants available to encourage this type of investment expenditure.

4. Technology

It's almost impossible to ignore the time and money saving benefits of technology in 2015. Get your head out of the sand if you aren't on top of it already because investing in tech knowledge and skills is guaranteed to save you thousands. Think along the lines of database integration, using cloud storage, better video communication, even enabling employees to work from home when they need to.

5. Staff Happiness

Where would we be without our staff? My team is the biggest asset of my business and I want to make sure that they are equipped with all things that make their experience at work the best it can be. This starts with premises, equipment, training, food, drink, extra pasta for the shovelers; you name it. A happy team will pay off big time so invest in them and watch your culture thrive and your business grow.

6. External Advisors

No one is the master of all trades. I have an external advisor coming into our business to challenge thoughts and give their opinion on different aspects regularly. It keeps me on my toes and forces me to look at things in an alternative way. People have done this before; you don't need to stumble your way through every facet of business without a helping hand. Pay for good advice now to help you get where you want to be sooner and thank yourself in the long term because it means saving precious time and unnecessary mistakes, which is a fantastic return on investment.

Don't be scared to spend money to make money! However, it's still necessary to be frugal so that when these investment opportunities do arise, you have the funds to go for it.

Stacy Szalay

Human Resource Manager at SEIVA