He who dares wins?
At a time when so many enterprises are struggling it might seem strange to be talking about the dangers of under-investing in your business. But many experts believe that the best time to invest in a business is when markets are tough, partly because it gives you a head start over your rivals when the recovery begins.
Of course, few businesses have much spare cash lying around to invest in processes or technology, which is why it is a good time to look at all the options for funding investment. With interest rates low and likely to stay that way for some time to come, investing in a business has become a more attractive option for those looking to generating a return.
No time to waste
Some investments have to be undertaken simply because firms have to keep up, which can be described as ‘defensive expenditure’. In other words they had to spend money or their competitors would take a greater market share.
Similarly there are many reasons to invest in better digital engagement with customers. It can be difficult to quantify the benefits of this type of investment, but applying traditional finance techniques will keep the business on its toes when questions are asked about costs and benefits.
Get the balance right
Many businesses have implemented staff incentive schemes where employees are rewarded for meeting targets relating to increased profitability. When used correctly incentives can be a useful way of encouraging hard work, but in this case they can have unfavourable consequences.
In fast moving markets innovation is vital to remaining competitive, which is why so many of the world’s largest corporations spend billions every year on research and development.
Smaller business could only dream of spending such sums, but when management remuneration is linked to profitability there can be a temptation to hold off on investing in projects that might take years to deliver a return in favour of minimising expenditure and inflating profits in the short term.
Be careful where the money goes
When consumer confidence and business confidence is low there is a temptation to retreat into holding cash. If you manage to overcome this you need to think about how you will spend the money.
For example, when the labour market is depressed you might be inclined to increase your headcount, but this will also increase your wage bill and with pressure on government to increase the living wage businesses operating on tight margins may see their staff costs rise even further.
On the other hand, acquiring new machinery or updating old equipment (either by purchasing or leasing) should increase your productivity.
Regardless of which approach you take, using a cloud-based accounting solution such as Big Red Cloud will help you determine whether you have invested in the right areas of your business.