Whenever someone tells me something costs too much, I ask: “Compared to what?” Lately, I’ve had more than a few clients bemoan the cost of a possible solution. While it’s certainly appropriate to ask about costs my concern is in the comparison point. The cost of a solution cannot be compared to zero. In none of these cases was the cost of NOT finding a solution free. It may be hard to measure or exactly quantify but make no mistake, there is almost always a cost to not finding a solution to a problem. Sometimes that cost is the lost opportunity of not finding a better process to complete a particular task. Or it could be the on-going staff cost of paying someone to do a job in an inefficient manner or perhaps a job that no longer serves a meaningful purpose. Other times the cost is missed revenue and profits either by not spending the money to try to get a new customer or not getting that customer because the business is, in actuality or perception, behind the times. Finally, there are times that it’s simply impossible to quantify the cost of inertia; but it certainly exists. It shows up as a lack of initiative across the entire organization. This may be the most expensive of all!
I recently had to convince a client that an employment agreement drafted by HR needed to be reviewed by outside counsel. I got significant pushback but they finally relented. It’s a good thing. Counsel found several significant issues (both the one about which I was concerned and another I didn’t realize existed). A few hundred dollars today is going to save a lot of potential expense down the road.
Right now, I have two clients working on a new system implementation. The implementation of both started before I was engaged and after an initial push both lost momentum. Not only does each require significant time and energy from the staff but both take some external dollars to get the expertise of the software vendor who has the required depth of understanding about the inner workings of the software. Ultimately, these ERP (Enterprise Resource Planning) systems are big databases that all work in a similar fashion but no two are identical in terms of the precise inputs, reporting features, options, functionality, etc.
During this past year, another client tried a new advertising approach. It generated gross profit of about half what we spent on it which was not exactly the outcome for which we had hoped. That said, we don’t regret the decision. We risked some money and while we lost a portion of it we learned from the experience. The fact that we tried something new energized us despite the shortcoming.
Squeezing the last dime of profitability out of the current period isn’t the objective. Business is about maximizing long term profitability and cash flow. That does not mean maximizing the profit this week, this month or even this year. Rather, it means making smart investments to continually improve processes and efficiencies in order to maximize the long term. Now this is easier when spending or investing out of a position of strength (solid profitability and cash flow with a sufficient pool of capital). It’s a far tougher decision when one is forced to deficit spend or has a less than adequate capital reserves, but it’s often an investment that needs to be made nonetheless.
If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to [email protected]
The archive of these monthly newsletters is posted at the Resources section of homza.com
your cash is flowing. know where.®
Ken Homza
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