Like a lightning rod, cash flow is sure to be hit when business owners begin investing in equipment, technology, supplies and other office needs. For small and mid-size businesses (SMBs), investments in assets can be a pitfall, as numerous surveys of SMBs reveal that lack of capital to invest in growing a business is one of the top three reasons cited for failure. This article is an overview of prudent steps to protect cash flow while acquiring the necessary resources to do business.
The Decision Approach. Purchasing decisions must begin by considering the eventual return on investment (ROI). Money spent on purchasing furniture, hardware and software, and equipment such as phones and copiers is tied up and will not be recovered for several years. Before making such purchases, a business owner should do a cost-benefit analysis, evaluating the total cost of ownership versus the benefits of owning the asset. Total cost would include such items as taxes, insurance and liability costs, maintenance, repair, upgrades/replacements and even downtime over the life of an asset.
Another important element in purchasing decisions is to project the company's growth two or three years out. As the number of clients or customers increases, how will the company's business processes change? The decision on which type of telephone equipment (including answering machine or voice mail, as well as wireless needs) should take into consideration what will be necessary in the next few years, according to the projected rate of growth.
It may be more prudent to acquire assets by leasing, contracting or outsourcing, or even checking into used equipment, furniture and workstations. Telephone and computer companies, for example, lease equipment. If automobiles are on the list of necessary assets, it may be more prudent to lease them too. With any leased assets, ensure there is a strong service commitment from the leasing company, including options for quick replacements.
Contracting or outsourcing (with the service provider company owning and maintaining the asset) is an effective solution for access to resources needed only on a short-term basis or where productivity volume is seasonal.
Supplies (such as business cards, paper, file folders and envelopes) can be purchased in local retail stores or online. Although volume discounts are an option, as are discounts through signing long-term contractual agreements, SMBs should carefully evaluate projected growth and usage of supplies before making such a commitment.
Technology. Automation helps companies operate with fewer resources, improve productivity and lower costs. For SMBs, software solutions for budget planning, resource management, decision-making analysis and sales support are particularly attractive.
But many companies come to regret their IT investments when they find they lack personnel with the skills (and time) to implement, maintain and upgrade the hardware and software. This is particularly costly when a software application is still new or evolving, as is the case with many customer relationship management and supply chain management applications.
Again, looking at the projected growth over the next few years, will the SMB need technology to interface with other companies' IT systems?
Understanding when and how to invest in IT is crucial for a company's success over time. Those who first evaluate total cost of ownership often realize that they will achieve a greater return on their IT investments by outsourcing technology needs. (insert link to article on outsourcing on this site)
While outsourcing is often not cost-conducive for relationships between service providers and SMBs, one component of outsourcing solutions is ideal for small businesses. Application Service Providers (ASPs) host and deliver software applications and services (including maintenance and upgrades) to their clients over the Internet. Their one-to-many delivery model makes access to the software cost-effective for SMBs. ASP services work like a lease, with a contract for monthly or annual services.
Asset Protection. Finally, a key issue when considering office needs is making sure assets are secure. This includes:
• Physical protection of the facility and insurance in case of theft or damage to the office
• Policy on whether and how employees may use company assets for personal use
• Internet security; protection of confidential data and protection from viruses and worms
A business back-up and disaster recovery plan is a crucial component of business needs. If a disaster were to occur, what equipment, data and other assets would be necessary to keep the business going? For example, consider how to ensure emergency access to client/customer contact information, whether on a computer or a rolodex.
Another business back-up solution is to use an Internet-based fax service if the SMB has a significant volume of fax communications. Since the faxes are not maintained on a fax machine in the SMB's office, crucial data would not be lost in an emergency.
Bottom Line. In eliminating unnecessary costs in asset investments by leasing equipment and making more effective purchase decisions, a company's bottom line will reflect more profitability and result in funds to invest in growing the business.
By Kathleen Goolsby
