Flushing money down the drain06th November 2019
I never thought we'd have a financial team meeting about the state of next door's toilets, but... it happened.
You see, our office's kitchens and bathrooms are a little cramped. At the same time, the building next to ours – which we own - was standing empty.
When the idea of expanding into the neighboring building first came up, it was just an idle suggestion: "It's empty, it's right there, and it would give us an extra meeting room and allow us to build new bathrooms - why not?"
The more we thought about it, the more certain we felt it was the right decision.
After all our offices are our public space -- the first thing people see and experience when they visit us. If the building and the facilities inside don't reflect our high standards, then something has to change.
For us, it makes perfect sense to improve the quality of what we already have, and bring longevity to it.
Sure, when you look at the numbers on the spreadsheet, it is hardly an urgent use of our money. There will be no direct return on this investment, at least not for many years.
Making the financial decisions for your company is *rarely* straightforward, and not simply a matter of looking at the numbers and deciding whether you can afford it.
On the expenditure side of your budget, there will always be essential costs you can’t avoid. But there will also be discretionary costs you’ll need to be able to justify.
You need to weigh up all the alternative uses of your money, and decide which is most valuable to you.
The benefit of a discretionary cost isn't necessarily financial, or even tangible… and it may not be immediate, either.
As long as you can identify and describe the underlying benefits, then you can weigh up all your options - and that’s always the smart thing to do.
But there’s more to it than that.
You need to know not only the pros but also the cons of each option, including any risks that you may not be aware of yet...
…and to make sure you've considered contingency plans for different outcomes. For example, what if our building work goes horribly wrong, or we end up having to move out of our office temporarily? (It could happen!)
And of course, while not every business decision is purely financial, you DO need to understand the numbers.
Plus, you need to be able to evaluate what will happen if you don’t spend the money – as well as what will happen if you do!
For example, you might decide to save money by delaying investing in new technology… But it might be a false economy. Your short-term financial position might look better, but long-term your company will become less efficient, costing you dearly.
This is where the classic joke comes from about a conversation between a CEO and a CFO considering spending money on training their staff: “What happens if we train them and then they leave?” "Ah, well... What happens if we don't train them and then they stay?”
The bottom line is that deciding where to spend your money can be complicated. There is so much to consider….
That’s why it’s useful to have a finance director whose role includes helping you to evaluate whether or not a specific expenditure is a good use of the company's money.
An experienced FD can help you prioritise your investments and analyse the implications of your decisions.
They'll spot consequences you may not have thought of, and be there as a check to ensure you don't walk into any risky choices without due diligence.
Expert insight and advice from a finance director is the key to sustainable growth.
It used to be beyond most SMEs' budgets - but with Insight Associates, it’s affordable.
Get in touch today and let's talk about how we can put this in place for you.