Five Expenses You Should Never, Ever Skimp On
to Sean C. Castrina, author of 8 Unbreakable Rules for
Business Start-Up Success, 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, says
Castrina: 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," 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, 'no' is the answer."
Here, he takes a look at five
penny-pinching sins that are not cost-effective for your
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, 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 admits. "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."
PENNY-PINCHING SIN #2: Using an in-house bookkeeper.
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 (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," Castrina says. "It's happened to me and to many other
small business owners. Now I'm adamant about hiring a
third-party bookkeeper, one who reports to me directly. I
ask my staff to leave this contractor alone, just as they
would an IRS auditor."
PENNY-PINCHING SIN #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
"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-firm
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
PENNY-PINCHING SIN #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
"We've all encountered a business that
made a poor impression because its employees weren't wearing
uniforms or because their signage wasn't professionally
created," he notes. "And don't even get me started on forms,
business cards, stationery, and websites made with 'do it
yourself' kits! 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."
PENNY-PINCHING SIN #5: Relying on word-of-mouth marketing.
Have you ever heard of Budweiser? Of
course, everyone has heard of Budweiser. Among 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
If I hear one more small business owner
tell me that he or she believes in 'word-of-mouth
marketing,' I may scream! Don't get me wrong," Castrina
comments, "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
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 a successful business coach and a
true entrepreneur, having 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 who focuses on what it takes to start, sustain, and
grow a business.
"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 effors will probably backfire. As an
entrepreneur, it's good to be frugal... but it really
doesn't pay to be cheap."