When running a business, one of the biggest decisions is how to allocate resources. Should you invest in capital or people?
Both play critical roles in shaping a company’s success. This article explores the benefits of capital investment compared to paying wages, and how to strike the right balance.
Capital investment
Long-term growth: capital investment, such as purchasing machinery, technology or infrastructure, boosts production efficiency and supports long-term growth. For example, investing in automated machinery can streamline manufacturing, increasing output and improving quality control.
Competitive advantage: staying ahead of the competition often means adopting the latest technology. Businesses that invest in state-of-the-art equipment can respond faster to market changes, better serve customers and operate more efficiently. This is particularly important in fast-evolving industries.
Enhanced productivity: modern equipment and software often outperform manual processes. For instance, software that automates admin tasks frees up staff for more strategic, high-value work, increasing overall output.
Tax benefits: many regions offer tax incentives such as accelerated depreciation, investment credits or R&D deductions, which can make capital investments more financially attractive.
Scalability: with the right infrastructure, businesses can grow without a proportional increase in headcount. This enables more output without increased wage costs, making it easier to scale operations.
Paying wages
Morale and retention: fair, competitive wages attract and retain skilled staff. A satisfied team is more productive, loyal and invested in the company’s success.
Flexibility: wages provide more flexibility than fixed capital investments. Businesses can adjust their workforce in response to market shifts or seasonal changes, helping manage costs.
Immediate impact: higher wages can quickly improve employee motivation and financial well-being. Reduced stress and increased engagement often lead to better job performance.
Skill development: good pay helps attract experienced professionals. Investing in training and development also builds internal capability, encouraging innovation and adaptability.
Positive company culture: when employees feel fairly paid and appreciated, it strengthens trust, boosts teamwork and creates a culture of contribution.
STRIKING THE RIGHT BALANCE
Both approaches are important, but success comes from balancing them strategically. Here’s how to evaluate what’s right for your business:
Align with long-term goals: resource allocation should support your objectives. A tech-driven business might prioritise equipment, while a people-first service company may focus on talent.
Run the numbers: compare the return on capital investments versus wage increases. Factor in productivity, retention, cost savings and long-term profitability.
Combine investment with training: capital investment delivers best results when employees are equipped to use new tools effectively. Training amplifies the benefits.
Monitor trends: stay up to date with industry and market conditions to guide whether to invest in equipment or adjust wages.
Remain flexible: review strategies regularly and adapt as needed to support both current performance and future growth.
A quick calculation to consider
Wages can be thought of as equivalent to a loan repayment when compared to capital investment. Based on a 60-month loan with a 20 per cent balloon, the figures could potentially look like this:
- $415 per week in wages equates to around $100,000 in equipment
- $830 per week equates to around $200,000
- $1245 per week equates to around $300,000
If an employee’s output does not generate the return to justify those wages, a machinery investment could be the smarter decision.
In summary
Capital investment drives long-term growth, scalability and efficiency. Paying wages builds culture, retains talent and increases adaptability. A balanced approach, tailored to your goals, unlocks the full potential of both strategies. Smart machines and smart people, that’s the winning combination.
Finlease is a sponsor of APPMA; this article is published on Machinery Matters, produced by PKN, as part of Finlease's sponsorship agreement. To discuss your options, contact Scott Kemp from Finlease: skemp@finlease.com.au
