In business, there are two main types of costs, those required for the short term, and those for the long term. As most businesses are created with the long term in mind, we must be careful that we don’t damage our chances of long-term success with hasty decisions favouring the short term.
The fact is that at times, we do need to make decisions based on short -term considerations such as:
- employing casuals to cover new promotions which result in extra sales, or
- special times of the year such as at Christmas, or
- leading up to the end of the old financial year to speed up the payment of outstanding invoices, or
- to clean up after a disastrous fire, flood or storm, etc.
Each of these costs are for short-term factors which do not affect the long-term viability or efficiency of your business. The issue therefore is to identifying the right type of short-term factor that needs attention which will not affect long-term factors negatively. This decision is far more complex, and hence, requires careful consideration.
At the moment, there is a short-term focus on employee costs for any number of reasons which may be resolved by the use of AI or other technology tools. The result of which may help you in deciding that the same number of employees are no longer required. Unfortunately, this decision on reducing costs in the short term may also have long-term implications of unforeseen finance and operational efficiency costs.
The result of these short-term decisions means that management and business owners are looking at reducing numbers of employees, or whether employees are required at all. As a result, management and business owners then consider:
- retrenching existing employees,
- employing unprofessional people because they are “cheaper”,
- using overseas outsourced businesses,
- the employee costs that are imposed by other parties, plus
- the loss of employer rights, which then negatively affects
- the employer’s ability to make a profit and a reasonable return on their investment.
The problem with any of these factors lies in what happens next. For instance, we already know that:
- AI is not yet perfect,
- technology tools can be alienating to your customers,
- the employees retrenched may open competing businesses or
- go to your competitors taking your intellectual property and knowledge, and
- your existing business may soon be nothing more than a clone of its competitors, etc.
Furthermore, if the employees retrenched are replaced with newer employees or are outsourced, these newer entities will require training and testing. These costs will be not cheap in time or dollars.
We also know that customer service and knowledge about your business’s products, services and customer knowledge is a key point of difference between competitors. If you don’t have the employees with these key attributes, then it is likely your business will leak customers, cashflow and profits.
Furthermore, you may note management and business owners have become increasingly intellectually lazy, and appear to more interested in acting as process managers and bean counters than businesspeople Worse still, they appear to have lost their entrepreneurial spirit and thinking which served themselves so well previously. It surprising when you think about it, that management could not find profit enhancing projects by using their existing employees to shore up and take advantage of their current business’s strengths.
At the end of the day, all businesses will at some stage be required to consider how they spend their financial resources. Will any short-term considerations and spending be for the long-term benefit of the business even though it may be considered essential in the short-term.
After all, most businesses are created with the intention of being around for the long term. Failing to consider the reasons and effects of short-term spending and changes properly, may cause long term problems and costs to the business. It is important therefore, that all spending and decision making be completed properly and not just because it is “… a flavour of the month type business strategy”.
Employing AI and retrenching employees is very popular at the moment, but it does have long term implications for your business far beyond saving a few dollars today.
Want to know more, contact Kim at kim@creditmatters.com.au, or 0411 649 261, or have a look at what we offer via our website at www.creditmatters.com.au
