Elliot Cooper is Enprise Group's CEO. He is a qualified accountant with deep accounting and financial controller experience.
Sometimes the smartest thing to buy for your business… is nothing at all.
It’s human nature to want the latest toys. When the newest model of phone, car or software is released, we don’t want to miss out. The reasons for this are as complex as human nature itself. We might think the latest gadget will modernise our business, or make us more productive. We may want to project a certain image – or it may be simple envy.
Marshalled against us are the forces of advertising and marketing. Whether it’s phones, cars or software, the ad men have a million reasons why you need to buy right now. This is particularly obvious in the consumer space, and Apple provides a very good example. When a new product iteration such as the iPhone 8 is released, the hype builds up to a roar. Existing customers queue up to replace a perfectly functional iPhone for the new 8.
It feels good, but it’s good business only for Apple. For your own business, what you’ve actually done is crystallise the depreciation and tie up valuable capital in the new asset.
If you haven’t already guessed, this column is all about sweating your assets. A new asset should have a return on investment (ROI) that justifies the replacement of the existing asset. You need to squeeze maximum value out of your assets – and that means you shouldn’t update to the latest gadget just because it is launched. When the hype builds, it’s time to stay icy.
How does all this relate to your business systems? Unless the existing systems are constraining your business, it’s generally best to ‘sweat’ the asset. In the car world, sweating the asset is often termed ‘Bangernomics’. This is where a user gets the most out of an older car by simply continuing to drive it instead of buying a newer model. You do not tie up valuable capital and the depreciation has already been absorbed - ideally by someone else. Bangernomics is smart business as long as the cost to maintain the car, and the opportunity cost of it not being on the road, do not impact your productivity.
Bangernomics is equally useful when applied to business software. If an existing system has constraints – and invariably all systems do – think about whether you can achieve efficiencies by upgrading the existing platform, or acquiring an add-on.
If you are paying annual license fees (ALF) for software then you are already paying for the latest software version. Take advantage of the upgrades to get the latest features added by the software vendor. Software vendors like MYOB and others are continually upgrading and developing their products to give users more functionality and improved user experience. If you are paying ALF then you should upgrade your software and take advantage of the improvements. It’s not good business to pay for something and miss out on the benefits.
Done right, the Bangernomics approach can be applied to your entire business. Use it to ensure you utilise your valuable capital only for assets that will assist in your business development.
(This article first appeared exclusively in the August 2017 issue of NZBusiness Magazine.)
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