Expense vs Investment

There is a big difference between an expense and an investment (from a business perspective) and knowing the difference can make some decisions much easier.

The thing to realize is it’s not the dollar amount or the category but whether there will be an expected return that determines the distinction. As an example, a plane ticket and hotel stay might be an expense (if it’s for a family vacation) or it might be an investment (if it’s to make a sales call or meet with a potential partner).

The big difference between the two is an expense simply involves the spending of money. Hopefully there might be a benefit (good food, nice vacation, new house etc) while an investment will hopefully bring a return (a sale, a new business etc).

Too often I hear people mix the two up. Someone will say they have “invested in a new car”. In most peoples cases, a car is an expense and not an investment. Or, people will complain about the expense of customer acquisition when this shouldn’t be an expense but rather should be an investment.

Companies (and individuals) should be looking to cut costs while looking to increase investment when possible. Unfortunately, many companies cut investments (marketing, sales etc) when times are tough mistaking them for mere expenses.

Have a great day!

Lawrence

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