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. And 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, and too many entrepreneurs don’t just wander into Cheapskateville—they set up shop there. Avoiding unnecessary expenses is one thing; becoming a fear-driven perpetual penny-pincher is another. 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, I know 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? Will it save my business money without negatively affecting profits? Sometimes, the answer is ‘no.’
Here, we take a look at five penny-pinching sins that are costing your business:
PENNY-PINCHING SIN #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 is the kind of message that sends skilled employees running for the hills, costing you money in lost productivity, turnover, and customer dissatisfaction.
PENNY-PINCHING SIN #2: Using an in-house bookkeeper.
Too many small business owners do bookkeeping in-house. Why is that a problem? First, 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 (or worse, the IRS) 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. 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 IRS auditor.