Most of us understand the importance of money especially if you are running a business. Entrepreneurs live by the axiom cash is king. This makes them stringent with their overhead, careful with their purchases, and strategic with their hires. However, businesses often overlook the importance of spending money due to their lack of knowledge or their risk-averse mentality.
Spending money to save money is a strategy in which business owners or finance professionals consider the lifetime cost and value of something in addition to immediate cost calculations. This means it is wise to compare the lifetime cost and value—the “total cost of ownership” or “lifetime value”—compared to the immediate cost to determine the best solution.
This strategy can be further explained by looking at a hiring example. Suppose you have two potential candidates for the same job. One of the candidates is a perfect fit for the job but is asking for payment which may be a bit over your budget. The second candidate is expecting a salary that matches your budget however his/her qualifications indicate that the candidate lacks valuable experience.
A low-cost hire may look good on the books now, but chances are they come with hidden costs: increased training costs, lower-quality work, and a higher risk of issues internally and/or with customers. And if these issues pile up to the point that the employee must be replaced, the company also incurs the additional cost of recruiting and onboarding a replacement.
Another way of looking at the problem is when considering buying equipment for production. Instead of looking at equipment’s cost as simply the purchase price, consider the long-term cost of ownership. This includes not only buying the equipment, but also maintaining, servicing, storing, and even insuring it.
Suppose, you buy the cheapest equipment for the production process. Most likely you are to incur huge overhead costs in terms of repairs and poor quality products. This will cause more harm than good as it will directly affect your financial and brand value.
Therefore, we recommend that you should analyse and plan for your financials. This will not only make your business more profitable but will also help you to save money in the long run.
We understand that analysing your business is very time-consuming and require expertise and that is why we at ZS Solutions Limited are offering a comprehensive financial and accounting solution for all your business needs. So, why wait? Join us today and make your business more prosperous.