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The Important Difference Between Costs and Investments

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The Important Difference Between Costs and Investments

Governments who don’t invest in infrastructure don’t last long. It’s a sure sign they’re short-sighted and will ultimately fail to meet the future needs of the people.

Proper planning takes anticipated growth into account and prepares for it ahead of time. The money that goes into making that happen is a cost that’s more accurately described as an investment because the long-term value is understood.

When we start out in business, it’s not always easy to see very far into the future, but a similar principle applies.

Proper planning involves putting the right infrastructure in place:

1. Making sure we have the right documents and procedures.

2. Having the right equipment that continues to be updated as our business grows or new technology emerges.

3. Honing our skills to make sure we are constantly providing the best service and products.

THE DANGER OF A COSTS MINDSET.

If we’re too short-sighted, we begin to see each of these expenses as a cost; full stop. They become a ‘necessary evil’ or just another hoop to jump through. Business owners with that mindset look for cheap options, not because of thrift, but because they don’t see the real value in what they’re purchasing.

“Short-sighted business owners cut corners, favour freebies, and make the mistake of choosing price over quality.”

The danger in taking that approach is that they end up with sub-standard purchases. They might be documents that aren’t tailored to their business, software that’s clunky or incompatible with existing systems, or even business information that’s outdated or incomplete. These decisions not only reflect poorly on the business but also send a substandard message to customers and stakeholders.

When the inventor of a unique product tries to get by without a confidentiality agreement, it says they have no serious investment in their business. When a factory continues to use slow, outdated machinery that’s prone to malfunctions, it shows a lack of foresight. And when a business owner fails to invest in ongoing education, it puts them at risk of becoming redundant.

These types of decisions limit the potential for any business to grow and thrive.

SHIFTING TO AN INVESTMENT MINDSET.

Legal frameworks, equipment and education, are just three areas of expense that all new businesses must be prepared for. Leaving them out of any startup budget means that they will always come as a surprise and be resented as another ‘cost’. Making allowance for them in any business budget is the first step in moving towards an investment mindset.

It is also possible to overspend in each of these areas, but that’s where personal learning and sensible enquiries come into play. We’ve all heard horror stories about people paying off huge course fees, tied into expensive equipment leases or who paid thousands for documents they didn’t really need.

The key is to remain in control of your business. Learn from the mistakes of others and work out if they apply to you. Find out what others in your industry are doing, ask questions and look for recommendations.

This serves two purposes:

1. Asking questions helps you decide where money should be invested in your business; and

2. Once you understand the value of your purchase, it is much easier to see the cost as an investment.

If I’m about to jump out of a plane, it’s easy to see the risk in securing the cheapest parachute I can find. Business decisions aren’t always that straightforward, but instead of just seeing everything as a cost that’s out to get you, commit to understanding what you’re paying for and why.

Spending money where it’s needed protects your business and secures its future, and that’s a sound investment.

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“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"



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