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WhenExpensesAre ReallyInvestmentsCompanies that grow during toughtimes know the difference.

When Expenses Are ReallyInvestments

As a business owner, you've probably heard this from customers makingcutbacks: "I can't afford the expense at this time." The domino effect haslikely caused you to view everything as an expense as well. When times gettough, companies tend to curtail or cease spending. Everything that costsmoney is viewed as an expense.

Some business owners don't need an economic downturn to have an "expenseonly" mind-set. This mind-set is one of the biggest downfalls of businesses ingeneral. If everything is viewed as an expense, then decisions are based noton a growth model but rather a survival model. Those who start a businesswanting only to survive are sabotaging their ability to make sound, strategicdecisions that will grow and sustain their businesses.

The key is to know and understand the difference between what is an expenseto your business and what is an investment in your business. In researchreleased in 2004 comparing high-growth companies to stagnant or negative-growth companies during the time period after 9/11 and the 2002-2003downturn, growth companies continued to invest. The research wasconducted by SLD Unlimited Marketing/PR Inc. from 2001 through 2004.

Important to note is that this was a standard mode of operation for the high-growth companies. In spite of the economy, they simply continued doingwhat they knew was essential based on their growth strategy. The resultliterally cushioned the economic blow and allowed them to grow. This tacticis also holding true to form in this current economic malaise.

Areas that are considered an investment by companies that understand agrowth model vs. a survival model are: image and marketing, training anddevelopment, technology, physical location and hiring.

When Expenses Are Really Investments

When Expenses Are ReallyInvestments

Image and marketing: If a business owner says she can't afford to markether business, she truly can't afford to be in business. This is where negativeand stagnant companies went awry in the last economy. When times weregood, they stopped marketing in spite of the fact that marketing got thembusy in the first place. They became too comfortable with business flowing in,deeming marketing no longer necessary; or they had to shift to a servicingmode to see their commitments through, so marketing took a back seat. Astop-and-go or stop-and-wait mentality toward marketing will cause morebusiness failures than anything. For growth companies, marketing is anongoing investment and an operational part of how the company conductsbusiness.

Example: A pediatric equipment company had been allocating a flat-feereimbursement for mileage and gas for its direct sales force's personallyowned vehicles. While the reimbursement was considerate to the sales force,the personal vehicles were not effectively able to contain all the equipment orparts necessary for optimal in-service calls. In addition, the vehicles wereunmarked, hence not providing any marketing value while on the road. Inlate 2009, the company investigated leasing custom-adapted vans to testreplacing personal vehicles with company-owned vehicles. Beginning inJanuary 2010, the first van was placed on the road in an expansion market,custom-fitted to better house the demonstration equipment and parts whilealso reinforcing the company brand and image. The enhanced presence, salesand in-service ability realized from the first van has proved that the shift tocompany-owned vehicles is a wise investment.

When Expenses Are Really Investments

When Expenses Are ReallyInvestments

Training and development: Growth companies understand that to growthe company, attention should also be paid to developing people within thecompany. Investing in technical or soft skills to enhance the people withinthe company makes a company a stronger competitor. From enhancing theability to sell, negotiate, use software or equipment to implementing a qualityinitiative for coping with stress or with working together, training is deemedan ongoing operational investment by companies that see their people ascritical to the company's staying power and growing power. This alsopositively affects the staying power of people within the company.

Example: A manufacturing company was enduring business costs such aspricing wars and supplier conditions affecting profitability. It becameapparent that more efficiencies and less waste were paramount to operationalsustainability. As a result, the company invested in an overall plant-recyclingand waste-reduction program requiring training and new processes to beimplemented. In addition, a lean manufacturing initiative was identified, andkey plant personnel received training to execute. The resulting efficienciesenabled the company to allocate money for an ongoing and more aggressivemarketing program.

Technology: Even with its rapidly changing and evolving applicationplatforms, when thought through strategically, technology can be aninvestment that pays your business back in a multitude of ways. A businessowner should continuously be considering how technology can help thebusiness perform better, be more efficient or allow its people to focus onmore income-generating and income-producing aspects of the business. Toooften the "expense" of technology clouds an owner's perspective on what thetechnology can ultimately do for the business in the long term.

When Expenses Are Really Investments

When Expenses Are ReallyInvestments

Example: A custom cabinetry business owner saw his business begin toexplode in inquiries and opportunities to bid on projects as a subcontractor toprimary contractors serving government construction projects. Even working16-hour days, he could not keep up with the demand for estimates of newprojects along with oversight of projects already under way. Numerous biddeadlines were missed. After lamenting the expense of an estimatingsoftware program that would require a $2,000 investment, he deemed it aninvestment he needed to make. Not only did it enable him to estimate jobs atthe click of a mouse, it also reduced his hours-per-day worked so he couldinvest the time in other ways. Jobs are streaming in vs. just inquiries.

Physical location: Being home-based saves on overhead expenses and canbe an excellent tax write-off. This can allow you to put your dollars in otherareas of investment that make better sense. An office presence, however, canbe a smart investment depending on your business's growth model. If youneed a space to present the appropriate image or to accommodate workers ormeetings with clients, you may have to consider a location outside the home.Later, as your business grows and continues to expand in a rented space, amortgage might become a better alternative than leasing because theproperty would be an investment and a tangible asset both for the businessand for you as the business owner.

When Expenses Are Really Investments

When Expenses Are ReallyInvestments

Example: A custom home builder was in the midst of expanding with animpressive stand-alone commercial office and showroom. The new facilitywas still several months from completion when his current leased space cameu p for renewal. With no option to go month-to-month, the owner leased atemporary, low-rent warehouse unit to curtail expenses until his new spacewas ready to be occupied. Shortly thereafter, rumors began to spread that hisbusiness was in trouble. With the help of a consultant, the owner realizedthat his expense mentality was the culprit, so he made two critical changesthat set the record straight. He invested in under-construction signage tomake passers-by on the busy highway aware of his new facility. He thenmoved from the low-rent warehouse space into one of the spec homes he wasbuilding, temporarily outfitting the garage into a complete office andshowroom welcome center. These location moves immediately squelched therumors and brought positive attention to his business's expansion in thecommunity.

Hiring: One of the toughest hurdles for many business owners to clear ishiring the first couple of people. That's because the positions are viewed as anoverhead expense rather than an investment. You need to factor your timeinto the equation. Before the first hire, the business owner's time is typicallybeing monopolized by necessary but non-income-generating activities. Thenext hire typically is needed because enough time is being devoted to oneparticular business activity to warrant putting someone in charge of thatactivity. The bottom line in either case is to hire in order to grow to the nextlevel. If no one is available to do what needs to be done, it won't get done.Period.

When Expenses Are Really Investments

When Expenses Are ReallyInvestments

Example: Co-owners of a language services company were feeling the pinchof the economy in 2009 as contracts began to be delayed and put onindefinite hold. The company's growth plan was set for hiring a keyadministrative position to support the owners in 2010. With the economyaffecting sales coming in, it was all the more imperative for one of the ownersto be able to target and market the business more aggressively while theother oversaw the work and kept it moving for clients. The ownersdetermined that hiring an administrative assistant was critical to enable oneco-owner to focus on income-generating activity and the other to focus onincome-producing activity.

Once you make up your mind to understand and know the differencebetween a true expense and an investment, you could be among thebusinesses that not only survive but thrive in this and future economies.

Ask YourselfUse these statements to assess if what you are considering is a justifiableinvestment. If you can answer yes to one or more of these, then what you areconsidering is an investment, not an expense.

Measurement:

Can be directly measured for increased productivity in an area of thebusinessCan be directly measured for greater efficiencies in a process or thebusiness overallCan be directly measured for increased profitability of products orservicesCan be directly measured for increased sales in businessCan recoup and realize a financial gain as a result of the monies spent

When Expenses Are Really Investments

When Expenses Are ReallyInvestments

Enhancements:

Will allow time for more income-generating or income-producingactivityWill improve individual, team or customer-service performanceWill enhance, reinforce or protect the company imageWill add credibility or capability, which can be promotedWill aid in distinguishing the company against competitors

Example: An attorney was frustrated, believing she had reached capacity inthe hours she could bill per week due to the time necessary to manage andrun her practice. In addition, she and her husband were planning to have afamily soon, so she did not want to get into a habit of working more hours toincrease her billable hours. A consultant suggested she track and documentall of her time, including the non-billable hours, without changing her workroutine. After four weeks of tracking hours, tasks equaling 10 to 15 hours perweek were identified as activities that could be given to a strong officeassistant.

The expense of hiring and paying someone else on a weekly basis had keptthe attorney from considering adding any support position. However, when itwas pointed out that the additional 10 to 15 hours could be converted tobillable hours, she determined to bring someone on board for 10 hours perweek as a test. Within one month, the assistant's hours were increased to 25hours per week. She had also proved valuable in research support, also abillable activity. The end result was an increase in the attorney's billablehours per week by 25 percent to 35 percent without increasing her overallhours worked. The administrative assistant generated enough billable activityto pay her weekly salary, plus add more profit to the firm's bottom line.

When Expenses Are Really Investments

When Expenses Are ReallyInvestments

Sherr� DeMao is president and chief marketeer of SLD Unlimited Marketing/PR Inc., a

branding, marketing and strategy firm based near Charlotte, N.C. She is the author of Me,

Myself & Inc. - A Synergized World, An Energized Business, Living Your Ultimate Life . She

is working on her second book, due to be released nationally in September 2010: 5O

Marketing Secrets of Growth Companies in Down Economic Times.

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When Expenses Are Really Investments