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Investing in software: An expense or an asset for growth?

January 17, 2024

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Business Essentials – Advertorial

In an age where more products than ever have software, software’s role has transcended mere functionality. It has become the backbone of product development across various industries. Redruth-based Bluefruit Software highlights why software should be considered an asset rather than an expense.

When it comes to the perspective you adopt in your financial planning, how you treat software development could define your success for 2024 and beyond.

ASSET VERSUS EXPENSE: A STRATEGIC STANCE

During product development, classing software as an expense leads to a view of money spent without return, much like printer ink—it serves its immediate purpose, and then it’s gone. Conversely, treating software as an asset implies an enduring value, akin to the printer itself, which keeps its worth and could be sold in the future. This approach encourages you to envision software as a capital investment that appreciates over time and contributes to your company’s growth and valuation.

THE LIFESPAN OF SOFTWARE: AN INVESTMENT PERSPECTIVE

Software quality is not a cost to be minimised but an investment to be optimised. By considering software as an asset, you can spread the initial investment over its lifecycle, leading to a lower cost per unit over time. Bluefruit Software sees this as “capitalising”. An apt analogy is Sir Terry Pratchett’s “Boot theory”: a more expensive pair of boots last longer, and therefore represent better overall value, than cheaper ones that need frequent replacement. Similarly, quality software may involve a higher upfront cost but delivers a superior long-term return on investment.

THE TANGIBLE BENEFITS OF INVESTING IN SOFTWARE ASSETS

Bluefruit Software sees the following advantages of capitalising on software development:

Competitive edge: Viewing software as an asset fosters strategic thinking for long-term market relevance, allowing for differentiation and competitive advantage.
Enhanced quality: Investment in quality software leads to robust features, reliability, usability, and maintainability, minimising technical debt and enhancing the user experience.
Reduced risk: A greater focus on testing and quality practices results in a product with fewer defects and lower operational risks.
Increased productivity: Incorporating advanced software tools and automation heightens productivity, conserving time and resources.
Financial clarity: On the balance sheet, an asset provides a clearer financial picture, aiding in informed decision-making and demonstrating value to stakeholders.

NAVIGATING THROUGH THE SOFTWARE LIFECYCLE

Adapting your software lifecycle is crucial, and Bluefruit Software has seen an effective three-stage model among clients:

Research stage: R&D costs are expensed during the initial phase as there are no immediate economic benefits.
Development stage: As a viable product emerges, expenditure transitions into an intangible asset, reflecting its potential market value.
Released product stage: With the product on the market, costs are amortised, spreading the initial investment across its useful life.

REFRAMING YOUR SOFTWARE STRATEGY FOR 2024

Looking forward to 2024, it’s time to reassess: is your software an asset that propels your business forward or an expense that drains resources? By capitalising on software development, companies position themselves for growth and reflect a savvy understanding of software’s integral role in product development.

Bluefruit Software is ideally positioned to guide businesses through this strategic shift. Aligning with Bluefruit means partnering with a team that sees the bigger picture, ensuring your software investment contributes to your company’s enduring innovation and success.

For further insights into how software can become an asset for your business, contact Bluefruit Software.