Pinpointing ways to save money for your business is a good thing. It helps you instill a lean operating mentality and creates discipline to put every dollar to work in the most efficient manner.
Anyone who’s ever bootstrapped a business knows all about the art of doing more with less. Stretching budgets can be a survival skill that keeps you always looking for ways to save a buck.
But if your goal is cost-cutting at any cost, watch out, says Sean Castrina, a business coach and serial entrepreneur who’s started 15 businesses in several industries. “Too many business owners don’t merely visit Cheapskateville, they set up shop there permanently. Avoiding unnecessary expenses is one thing; being a perpetual penny-pincher driven by fear is another. And too many people can’t see the difference.”
Cheapness in some areas can damage your brand, cheapen your product or services in the eyes of customers and come back to haunt you. “Subject each cost-saving measure to this litmus test: What are the possible short- and long-term effects of this decision,” said Castrina, author of “8 Unbreakable Rules for Business Startup Success.” “Will it save my business money without negatively impacting profits later on?” Sometimes the answer is no.
Here are three places small businesses should avoid pinching pennies too tightly:
• Paying employees the bare minimum. Excessive tightfistedness on payday sends a clear message to your employees: “I place a low value on you and what you do for my company.”
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.
• Using an in-house bookkeeper. Why is this a problem? According to Castrina, too many boss-designated bookkeepers don’t completely know what they’re doing. They may use unnecessarily broad headings or classify items incorrectly. Sooner or later, your accountant (or IRS) will charge you to correct these mistakes, saving you nothing.