Many business owners struggle to know the difference between smart financial decisions and blanket cost-cutting. (DFW Save Taxes: Don’t Be a Cheap Business Owner)
While cutting costs may be great, it can also be fatal if done without careful consideration of your outcomes. Companies do not grow by cutting costs; they grow by increasing sales. If owners, in an attempt to lower expenses, deprives businesses of needed capital, then it could lead to stagnant growth or negative cash flow.
Consider the unintended consequences of not spending money on important business systems. Many business owners may think they are being frugal when in reality they are being cheap. Frugality leads to efficiency, while being cheap leads to a whole host of problems.
Go Beyond The Essentials
Only spending money on things that are essential will make your company bland and indistinguishable from competitors.
For discussion purposes, consider a restaurant business bathroom. Can the owner get away with white walls, a standard sink and a standard toilet? Sure. While extra nice fixtures in the bathroom may seem frivolous to some, many customers will be positively impacted by a high-quality bathroom experience. It may make a lasting impression and send the message that the business exudes quality and has a unique personality.
Just because something isn’t absolutely needed doesn’t mean you shouldn’t invest in it. Your company’s image is worth the money!
Market And Promote
Many business owners all too often don’t spend enough money on proper marketing and advertising.
Spend 5 to 8% of your goal gross revenue on that. This means that if you want a company that generates half a million dollars in sales, then you should start spending $25,000 to $40,000 in advertising now.
Once fueled with proper marketing spend, your company should be on its way to achieving your goal. Avoid spending based on where your company is today; instead, spend based on where you want your company to be tomorrow. If this formula is legitimately not possible for your business, then take it in stride. The idea here is that the common 5% to 8% of revenue philosophy may be too low for actual growth, especially if you are a startup with low revenues or a business in a highly competitive industry. Alternatively, consider two marketing spend percentages: one that sustains your current gross revenue and another that promotes growth.
Never Neglect Insurance
Business owners use insurance as a hedge against losses. Many business owners get hit with life circumstances they did not foresee. A simple umbrella plan or policy that pays you cash if you can’t work due to injury or illness can make all the difference when faced with the unexpected.
It’s not frugal to ignore insurance; it’s cheap. And it may cost you everything. If you don’t have adequate insurance, get it today. It’s simply not worth the risk.
When It Comes To Marketing, Cover All Your Bases
Make sure that your customer service and sales teams have every tool they need for success. This is like marketing insurance.
The idea is to take every action possible to ensure that your marketing dollars (the 5% to 8% of goal gross revenue mentioned above) actually turn into sales.
It’s bad business to spend money on marketing only to ignore things like training your receptionist who answers the phone or buying tools and materials for your sales team who closes deals with customers. It’s almost always money well spent when it comes to communications systems with customers, sales presentations for product clarity and modern equipment for your workers.
In short, if you’re going to spend money to get the phone to ring, make sure there are no broken links in your sales process chain.
Not Everything Can Be DIY
In general, too many people are overconfident when it comes to projects that should be handled by professionals. The desire to save money and “do it yourself” often comes with unintended consequences.
Unfortunately, in business, many of those unintended consequences are not easily identifiable. For example, the business owner who decides to save money by building their own website may never realize that their company is suffering due to their desire to save a few thousand dollars. Branding and marketing DIY projects often backfire because they tend to yield low company credibility.
While some DIY flops can create those “we’ll look back at this someday and laugh” moments, many can seriously stifle company growth due to lack of awareness. The smart business owner knows their strengths and hires professionals to fill in the many gaps.
Learn From Those Who Came Before You
The cheap business owner avoids spending money when they can and should. Being frugal in business means you look past the short-term solution and consider the big-picture consequences with respect to time and money.
If you think about how spending or saving a small amount of money today will impact you tomorrow, then you are well on your way to becoming a savvy entrepreneur. The last tip in this article is to remember to seek the advice and guidance of those who have gone before you. Education and training, especially from successful entrepreneurs, is always a smart investment choice, and one that may not only save you money, but help you grow and scale to your heart’s content.
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