Budgeting for capital expense. What a sexy concept that is. Can’t we talk sales or marketing or even digital something will do. But budgeting? And capital?
The problem is if we’re spending all our time concentrating on marketing and sales then we can become caught up in business hubris. We want to be the biggest and the tallest because when it comes to numbers that we can throw around to make us feel better about ourselves, surely revenue wins!
So many fast-growing companies suffer and many die, because their people are chasing sales and aren’t budgeting for growth. I’m certainly not suggesting you don’t concentrate on sales but I’m suggesting we measure our vanity with a bit of sanity by budgeting for efficiencies, for improved productivity, and for those capital expenses to ease our growing pains when we begin to hit critical mass.
Often when you’re fast-growing and especially when you’re a start-up, resources including cash, are thin on the ground. Business owners and CEOs can be reluctant to spend money on capital costs because it won’t excite shareholders and may put a drain on already stretched cash flow.
Which is exactly why it’s important to go back to the numbers and budget for growth. Let’s take the example of a factory owner who was using older machinery they’d purchased with the business. The business was growing and the owner desperately wanted new machinery but he couldn’t justify the cost when the business was still in its infancy. But when we modelled the numbers it became clear that the financed cost of the machinery would be less than the improved productivity the machinery would provide. In fact, the machinery would pay for itself halfway through the month and the rest of the gains would be pure profit. By modelling the numbers, working out how best to pay for the machinery and then budgeting for the expected increase in sales and productivity, the business owner could budget for growth. Rather than simply hiring more staff because they were only chasing sales.
In business we can keep sprinting and do the obvious and miss the opportunity to add a whole lot of dollars to our bottom line by only concentrating on sales. Or we can be smart about growing our businesses by widening our vision and budgeting for growth. Sure the concept isn’t sexy but the results of more cash in the bank certainly can be.
