People sometimes look at an expense and an investment as one in the same, but they can be very different, and a company’s philosophy towards investment vs. expense says a lot about its ability to manage business ups and downs over the long run.
An expense costs you money; an investment is supposed to make you money. When viewed as an expense, spending money is perceived as a necessity, a cost of doing business, something you want to be as small as possible. But when you make an investment, it’s an option, a choice you make, one you hope pays for itself quickly and helps to propel the business forward.
People who consistently view investment opportunities with an expense mindset are likely to treat even strategic decisions with a survival mentality. This makes it difficult to create and then execute a plan that results in steady growth and long-term success. Knowing and appreciating the difference between an expense and an investment can really help.
When considering a non-trivial purchase, ask yourself these questions. Will it:
• Free up time for our employees to be more productive?
• Make a difference in how satisfied our clients are?
• Help differentiate our company from competitors?
• Contribute to improving the firm’s image and reputation?
• Open up new market opportunities for us?
If your answer to one or more of these questions is “yes” and you can measure improvements in employee productivity, revenue generation, client satisfaction, etc., then the money spent should be seen as an investment in the company rather than a cost of doing business.
Deciding where to spend limited dollars can be a real challenge for any organization. But if you can distinguish between expenses and investments, you can apply the above questions to each important purchase and add clarity to the decision-making process. In the long run, your business will be better off for the extra scrutiny.