Separating Expenses from Investments

Monday, February 8, 2016

Remember the old STP commercial? ...“Pay me now or pay me later.” It was about an engine oil additive that when added to the oil, would extend the life of the engine…“A small investment now would save big costs (expenses) down the road.” We're kind of at that defining moment in our businesses. Now that things are more “normal” we can once again take a snapshot a year or two down the road...Not just the given month or quarter. And for sure, when you add a person, add a truck, upgrade software, etc., it immediately is seen as an "expense"... A new cost added to your business model.

These new expenses tend to fall under the “snow-ball” effect. Your cost of doing business in the given month just went up, say three thousand dollars...So you need “X” amount of additional sales at “X” margin dollars to pay for that new "expense." And in the short term, pretty hard not to see that as “That new expense!!”…Not the “Investment” that it truly is. So how do you separate the two? Adding a new truck or forklift may not be needed for those deliveries tomorrow, but the trend you're on tells you that surely the need will be there four months out. And technology... At Kimal we got extremely good using "Bubble Gum" and "Bailing Wire" to keep old computers, printers, etc., going. Hey! We could just keep on with that BG and BW...but here again, whatever you begin to put in place now will pay off, it’s just that you may not even be able to start paying it off until a year down the road.

And the most important "Investment" of all: Our Associates. Once again the “Kimal Family” is growing and we are aggressively "banking our fires" with some sharp new hires... folks that will really begin to earn their keep maybe a year or so down the road. I guess in my mind, it's kind of like shifting those multiple hats we wear...At this stage taking off the hat we had to put on when we made tough decisions laying folks off, selling equipment, etc. on a month-to-month basis just to donning the new hat that makes you take that longer look, to six months or a year from now. To ask, “What do I need in all these resources, once I get there?”

So, the big question behind all this is, “How do I know the sales, etc., will be there at some future point in time?” Of course I don't know. But let me comment (having grown up with farming) that we farmers who plant that next crop... if it grows well, and we fertilize well, and it produces to expectations, then of course we did the right thing. And if the "crop" turns out poor...well, been there done that too, but I feel that right now it is an era of "Optimism" and time to anticipate and plant for some "bumper crops." Good Luck on "Investing" and looking now a little further down the road. Hey! As Building Material "Gamblers"...we're pretty good at that too.

Al E. Bavry, CEO, Kimal Lumber & Hardware 2/8/2016

Add your comments:

Items in bold indicate required information.