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How Much Does It Cost?

 

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May 22, 2019

That’s the first question I recall answering in my personal financial journey. 

Sure, it started with calculating how many 5-cent candies I could buy at the local 7-Eleven with the portion of my allowance allocated as “fun money.”

For childhood entrepreneurs (i.e., the pre-Amazon/eBay era neighborhood candy resellers), more advanced financial terminology like marginal and incremental costs, profit and net revenue, or cost of goods sold took on familiar meaning early on.

Maybe the same hold true for you.  Perhaps, your experience with budgeting started earlier than you might realize. 

In the article 8 Reasons Why Your Startup Is Going to Fail, chief among those cited are overspending and underspending.  Seasoned entrepreneurs know that having a pro forma or budget forecast  is just the first step.  The next step is know whether your financial model holds up through the transition from theory to practice. 

In reality we know there are always hidden costs.  Inevitably, there’s an expense, an environmental change or production cost that operates as an ever-shifting variable. 

So, this week we’re exploring a few overlooked costs that are left out of most organizational budgets:

Cost of Inaction: While company spending decisions are often couched in terms of ROI (return on investment), analysts and risk adverse advisors (like your lawyers or accountants) will advocate for calculating the cost of doing nothing. 

This is amount equals the long term cost of the those things you just continuously “roll over”, procrastinate on addressing, or simply fail to act upon.  A-head-in-the-sand approach only hides the cracks in the foundation of your organization.  So the next time you feel the urge to ignore a problem, consider: how much will this inaction cost ?

Value Spend:  How you spend your money is a reflection on who you are.  The same holds true for organizations.  While a company’s aspirational and tangible values span a wide spectrum, the people — employees and team members alike–are a most valuable asset.  

Studies show a content and engaged team has a positive net return.  Indeed,  companies with high-level engagement have a 19 percent increase in operating income and a 28 percent increase in earnings growth. Conversely,  low-level engagement results in a 33 percent decrease in operating income and an 11 percent decrease in earnings growth. How much do you invest in your people?

Time Value of Money:  From exploring the viability of future opportunities to accelerating internal innovation through R&D, investing in preparedness or next steps should be a priority.

Ultimately, however, the core purpose or raison d’etre ought not get lost in the calculus.  Google’s 20% experiment or Kronos’ unlimited vacation policy illustrate the value of budgeting time and energy in the same way you budget your paycheque.  Do you allocate time to get back to the why?

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