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Do you have an expense or investment mindset? How to determine the true costs?

Stefan Kazakis, Business strategist, presenter, founder of Business Benchmark Group
Article from winter 2015 issue of ‘Inside Small Business’ Magazine

We all know that there are going to be costs involved in taking your business to the next level. How you approach those costs will be pivotal to whether your business goes to the next phase or languishes where it is now.

There are two different mindsets you can have when you look at costs: you can see them as the cost of growth or the cost of opportunity. Let me explain.

An expense mindset
Being in cost-of-growth mode means having a short-term outlook and seeing everything purely in terms of dollars spent. You have an expense mindset.

You look at each decision and say ‘Geez, I’m not sure if I can afford that right now,’ without looking further into the future and recognising the long-term benefits of spending that money. When you are in cost-of-growth mode you are holding yourself back and limiting your horizons.

An investment mindset
When you look at decisions as opportunities and not simply costs, your whole horizon will expand. You are clear about where you are going and you are moving forward within the market that you are targeting. You are reaching out and strategically growing the opportunity, rather than letting your fears hold you back.
You have an investment mindset.

An example
Let’s say you run a retail outlet and you are considering expanding to a larger store – business has been good and you think you are on the right track. If you are in cost-of-growth mode, you’ll do all the sums and decide that maybe it doesn’t quite add up.

Maybe you’re not ready after all or don’t have the financial resources to pull it off right now. You might next year, but not now. Or maybe you think your current little store is where you belong, or perhaps you’re not willing to go off the edge of the cliff and take the calculated risk to seize the opportunity.

Let’s turn this example around by looking with an investment mindset.

Let’s say that investing a further $20,000 a year in rent to expand on your retail floor space allows you to sell a further two product lines, which are considered a ‘bolt on’ to your existing product mix; and that the sale of these two products will increase your average dollar sale from X to Y per customer and therefore result in an additional $60,000 of profit growth.

Now the cost of opportunity is the additional rent and some staff training to achieve three-times the return in profit versus ‘I can’t afford the $20,000’.

Marketing: expense or investment?
Another example of the cost of growth versus the cost of opportunity, and one that is of concern to all businesses, is marketing.

Your accountant will tell you that marketing is an expense, but those business owners who are in growth mode – those who are wanting to take their business to the next level – will agree that marketing is actually an investment. Of course, I am referring to marketing with clarity, a plan B plus tested and measured results.

Moving forward
If you are moving forward with clarity and confidence, you will not see expansion in a new location as a cost, but as an opportunity. You’ll understand what the new location will bring – it will make everything bigger and better and launch the next phase of your business.

Perhaps the decision will hurt you in the short term, whether it’s your finances or your operations – whatever. Remember that sometimes you must go two steps backward to go four steps forward. If you’re in cost-of-growth mode you’ll just see the two steps back, but if you’re in cost-of-opportunity mode you’ll also see the four steps forward. This is how you grow a business. It’s not a license to throw money at something every chance you get, but it is about being bold and backing yourself if you’ve put in the hard yards in critical thinking.

The identity shift between ‘cost of growth’ versus ‘cost of opportunity’ thinking is also your progression to becoming an investor in your business as opposed to being the best employee.

The Business Enterprise Centre is a community based not-for-profit organisation established to foster the growth of business within the Central West of NSW. We are managing agents for the NSW government Small Biz Connect Program, Australian Government ASBAS and NEIS program. To find out how we can assist your business contact the BEC on 63620448 or email info@becbiz.com.au