Greenhouse Canada

Business Management
Are you penny-pinching yourself out of business?


December 23, 2013
By Sean C. Castrina

Topics

Dec. 24, 2013 — If you’re bootstrapping your own business, you know all
about doing more with less. The ability to stretch a budget is a
survival skill, especially in those cash-strapped early days.

Because you know you’re never much more than a bad quarter or an
unexpected expense away from closing your doors, you’re always looking
for new ways to save money. But here’s the real question: are you being
cheap about the wrong things?

“If your goal is to cut costs at
any cost, you’re heading into dangerous territory,” says Sean C.
Castrina, author of 8 Unbreakable Rules for Business Start-Up Success.
“And too many entrepreneurs don’t just wander into Cheapskateville —
they set up shop there."

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“Avoiding unnecessary expenses is one
thing; becoming a fear-driven perpetual penny-pincher is another,” he
adds. “Too many people can’t see the difference. And that’s too bad,
because ‘cheapness’ can hurt the value of your product or service, or
the efficiency of your business, both of which will drive customers
away.”

Having started more than 15 companies in industries
including direct mail, home services, property management, retail, and
more, Castrina knows just how tough it is to write checks to employees,
vendors, landlords, banks, etc., when your hopes, dreams, credit, and
livelihood are at stake. Yet making those checks too skimpy can cost you
big down the road.

“Subject every prospective cost-saving
measure to this litmus test: What are the possible short- and long-term
effects of this decision?” he advises. “Will it save my business money
without negatively affecting profits? Sometimes, the answer is ‘no’.”

Here, he takes a look at five penny-pinching sins that are costing your business:

1.) Paying employees the bare minimum

Excessive
tightfistedness on payday sends a very clear message to your employees:
“I place a low value on you and what you do for my company. I don’t see
you as a person with talents and unique abilities, but as a debit on my
monthly expense report.”

And that, Castrina points out, is the
kind of message that sends skilled employees running for the hills,
costing you money in lost productivity, turnover, and customer
dissatisfaction.

“Yes, some low-skill positions can be filled by
just about anyone and shouldn’t come with a high salary,” he says. “But
if you have experienced, efficient employees with a high level of
expertise, you need to compensate them fairly. Quality employees can
make or break your company. Ask yourself: Would I want this person
working for the competition? If not, pay them well and keep them on your
team indefinitely.”

2.) Using an in-house bookkeeper

According
to Castrina, too many small business owners do bookkeeping in-house.
Why is that a problem? First, he says, many boss-designated bookkeepers
don’t completely know what they’re doing. For instance, they may use
unnecessarily broad headings or classify items incorrectly. Sooner or
later, your accountant will charge you to correct these mistakes, saving
you nothing.

“The larger problem, I’m sad to say, is that it’s
easy for an in-house bookkeeper to steal from you,” Castrina says. “It’s
happened to me and to many other small business owners. Now, I’m
adamant about hiring a third-party bookkeeper who reports to me
directly. I ask my staff to leave this contractor alone, just as they
would an auditor.”

3.) Skimping on legal services

Castrina
recalls going through a touchy legal matter several years ago. When he
described the matter to an older business colleague, his colleague had
this to say: “Your attorney is a nice guy, and he’s good with general
matters, but for this situation you need a killer. You need someone
whose name strikes fear into the heart of opposing council!”

“I
took my colleague’s advice because I knew he’d been in my shoes,”
Castrina says. “And I’m so glad I did! The matter went away quickly and
was some of the best money I ever spent on higher-priced billable hours.
For general matters, I like hiring young, new-to-their-firms attorneys
whose rates are low and who are really trying to earn my business. But
for matters in which your company’s survival is at stake, hire the best
lawyer you possibly can.”

4.) DIYing branded materials

You
have one chance to make a good first impression. We’ve all heard this
advice our entire lives, but too often, business owners forget it
– often, to their detriment.

“We’ve all encountered a business
that made a poor impression because their employees weren’t wearing
uniforms or because their signage wasn’t professionally created…and
don’t even get me started on forms, business cards, stationery, and
websites made with ‘do it yourself’ kits!” Castrina says. “The fact is,
customers are always going to judge businesses by their covers. So if
you want to be paid like a great company, you need to look like one.”

5.) Relying on word-of-mouth marketing

Have
you ever heard of Budweiser? This, of course, is a ridiculous question.
Everyone has heard of Budweiser. Among (many) other things, the company
produces an endless stream of expensive, Hollywood-quality commercials
just to remind consumers of the well-established fact that it sells
beer.

The point is, no matter how successful they are, great
companies are always trying to communicate with and attract potential
customers.

“If I hear one more small business owner tell me that
he or she believes in ‘word-of-mouth marketing,’ I may scream!” Castrina
comments. “Don’t get me wrong; customer referrals are very powerful and
can really help drive your business. But I’ve never owned or worked
with a company—even those with A+ BBB ratings—that owed more than a
third of sales to word-of-mouth business. The fact of the matter is, if
you try to save money by not budgeting for marketing, you’ll save your
way right out of business. You simply must spend money to attract
customers.”

“Here’s the bottom line: In business, you get what
you pay for,” concludes Castrina. “If you try to skimp on something that
affects the experience your company offers consumers or that
compromises its ability to run efficiently, your efforts will probably
backfire. As an entrepreneur, it’s good to be frugal…but it really
doesn’t pay to be cheap.”

Sean C. Castrina is the author of 8
Unbreakable Rules for Business Start-Up Success and the
soon-to-be-released
8 Unbreakable Rules for Small Business Dominance. He
is also founder of newbizcoach.org. A successful business coach and a
true entrepreneur, he has started over 15 successful companies over the
last 18 years. His companies have ranged from retail, direct mail
marketing, and advertising to real estate development and home services.
Sean is a sought-after speaker and can speak with authority on what it
takes to start, sustain, and grow a business.


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