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Investing In Growth: Where Do Businesses Go Wrong?

Businesses are mistakenly ploughing funds into non-profitable areas, Andrew Johnson explains how to put it right.

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Businesses are mistakenly ploughing funds into non-profitable areas, Andrew Johnson explains how to put it right.

Opinions

Investing In Growth: Where Do Businesses Go Wrong?

Businesses are mistakenly ploughing funds into non-profitable areas, Andrew Johnson explains how to put it right.

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The budgets and financial health of SMEs have never been under greater scrutiny with MDs and FDs continually looking at ways to cut costs and improve their businesses’ bottom line.

With one in two start-ups failing, spending money wisely is key and should not be forgotten as a company expands and grows.

Decision makers should be encouraged to treat company money as they would their own; this will hopefully ensure funds and resource are not frittered away.

Admittedly, when a business first gets things off the ground, mistakes are bound to be made – it’s rare that every idea, strategy and decision pays off first time around, but it is crucial to analyse all the information available and learn from subsequent setbacks. The worst possible decision one can make, is no decision at all; ‘wait and see’ is rarely a positive step or mind-set to adopt.

All sorts of people will try and influence you and insist that you need ‘x’ piece of software or ‘y’ piece of technology and sometimes they will be right but you need to assess whether you will see ROI. Subscriptions services, for me, can often be an area where businesses get fooled in to spending vast sums on services which they don’t particularly need.

In the first instance go for the shortest contract length and only at the point of renewal should you look to lengthen the contract; providing it is now essential to the business. Take management software for instance, there is likely to be a cheap/free alternative. More often than not the entry level products will be suitable and worth exploring before paying for any additional features or version of the service.

In recent times there has been a tendency to invest in lavish office space and furniture, which I think can be hugely misguided. There must be a balance between attracting the right talent and portraying the company as a great place to work, but there must also be thought towards the image conveyed to customers, suppliers and the like.

Paying over the odds for flash offices is unlikely to provide the return decision makers envisage. The same can be said for expensive technology as well. While I do not stand by the ‘if it ain’t broke, don’t fix it’ mentality and know that it is important to update tech with the modern way of working, the very latest all-singing, all-dancing product is not always the answer.

This comes down to assessing whether the tech will improve productivity and make employees’ lives far easier and, if so, along with a return, then it is worth pursuing.

Support maintenance contracts I feel can often be an unnecessary expenditure for a business. I appreciate they provide a comfort blanket for the IT department but it is important they are reviewed regularly and challenged when looking for cost savings – they must be adding value.

If you do decide to invest in new technology or software, then negotiate the setup fees. These tend to be negotiable, so don’t accept these, especially as part of large software products.

At Powwownow, I also keep an eye on our well-being and I think a lot of companies put emphasis in the wrong areas when it comes to employee benefits. You have to understand what your workforce really value.

Companies spend vast sums on benefits such as health/life insurance or car allowance when ultimately their staff would much rather flexible working and over 25 days’ annual leave, which are far cheaper alternatives.

The same can be said with extravagant business parties; of course it’s important for employees to enjoy themselves and feel relaxed but that doesn’t have to be drinking champagne on a rooftop bar in Mayfair. Get the balance right.

In the early days of a business life can be difficult, so make things as easy as possible by making smart financial decisions which can reap huge benefits for the company in the short and long term.

Andrew Johnson is financial director at Powwownow.

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Investing In Growth: Where Do Businesses Go Wrong?

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