Difference Between Business Expense and Investment
It’s easy in a rough economy to misunderstand the difference between a business expense and an investment. They both look like the same cash out the door! Unfortunately, when expense cuts are across the board, the law of unintended consequences can rear its ugly head.
I remember my employer, a major insurance organization, responding to a similar economic period in the late 1970’s. They decided not to hire the usual crop of trainees for one year. Not recognizing this was an investment, rather than an expense cost them dearly in huge staff and skill gaps for about five years.
Risk management, including safety, loss prevention and mitigation are often put on the chopping block in times like these. For some firms it feels easy to cut this “soft” stuff: “We’re in good shape. What could go wrong?”
Large company risk mangers know the consequences: it costs $7 to $10 to fix a safety or risk management issue than to invest $1 in preventing it up front.
Business Insurance recently reported what can happen:
- Tighter budgets, less attention to safety and stretched labor can lead to MORE ACCIDENTS;
- Less managerial oversight often encourages ETHICAL PROBLEMS;
- Layoffs can bring LIABILITY AND DISCRIMINATION CLAIMS, SUDDEN “INJURIES,” and LONGER CLAIM PERIODS for workers’ compensation.
What you can do ~
Doing more with less is often a necessity, at least for a while. What’s important is not losing sight of your long-term strategies.
- Discuss problems openly with staff to get understanding, ideas and buy-in.
- Get input for effective change implementation – how can you maintain key priorities and the needed oversight to make this work.
- Everyone’s got to know you’re not downplaying quality products and services or worker and public safety: talk it up and walk the talk.
- Discuss gaps with your insurance professional or broker and other suppliers. Ask them about ways to get – often free – value-added training, risk assessments, loss control inspections, testing and other help.
- Remember some investments have intangible benefits, like professional advice that allows management to be more focused and productive, avoids problems, or reduces stress, hassle and distractions.
What’s your Return on Investment?
Insurance rates are already climbing and expected to go higher this year. Insurers are clamping down and restricting coverage. This is definitely not the time for you to have additional claims or look like you’re doing a sloppy job with your risk management and loss prevention basics. High priority attention and some investment here will pay off over many years to come.
What’s your experience in this area? How hard is it to distinguish between an investment for the future and just an expense?