An Investment – An Expense?
What does it take to get the job out the door at your business? Materials, equipment, labor, all of the above?
When we purchase equipment and materials that help us get the job done more effectively or efficiently, we tend to realize that we have made an investment that will provide a return. This return is generally in the form of greater long-term profits. At times though it seems we have a different thought process when it comes to labor.
I’ve heard owners say things like “they just cost me money” when referring to employees or even sub-contractors. It’s quite true that employees and sub-contractors are a cost factor for any business, the question is then, are they an investment or an expense?
For businesses that bill clients based on employee hours, it’s possibly easier to see that the employee cost is an investment in producing the work, therefore in producing revenue. Yet it takes more than the employees directly related to producing the work to get the job out the door. If the billing clerks, administrative staff, bookkeepers and sales staff didn’t do their job, your customers would not be properly serviced and your ability to run a profitable business would suffer as well.
To insure that labor costs are also an investment for the business instead of just an expense reducing our profits we can take the following steps:
- Invest in our employees’ education and training (including safety training)
- Insure that our sub-contractors are current on their technical skills
- Provide the right work environment that enables them to perform at their peak
When we see our employee and sub-contractor costs as an investment, we analyze these costs as we do any dollars invested in producing our product or service. We track performance and see where that investment is providing a positive return, where improvements can be made and how these costs are driving our profits.
We’ve helped clients develop a variety of methods to track employee performance. If you need suggestions, give us a call.
-Terri L. Davis