How To Be A Frugal Business Owner (Without Being Cheap)?

Working with franchisees and small business owners has given me a unique insight into coping with the common challenges that many entrepreneurs face. I’ve found a very popular character in small business owners: their inability to distinguish between smart financial choices and overall cost-cutting.

Although cost cuts can be helpful, they can also be fatal if made without proper consideration of outcomes. Companies do not expand by cutting costs; they increase by rising revenues. Therefore, if the owner, to minimize costs, deprives critical business systems of the capital needed, it could lead to stagnant growth or negative cash flow. 

It is important to understand the unintended effects of not investing money in important business processes. Many business owners may think they’re frugal when they’re cheap, in fact. Frugality leads to productivity while being cheap leads to a host of problems.

Go beyond the basics.

Just investing money on important items would make the business soft and indistinguishable from competitors.

Consider a restaurant company bathroom for discussion purposes. Will the owner get away with a white wall, a standard sink, and a standard toilet? 

Oh. Sure. 

Although some people may find extra nice bathroom fixtures frivolous, many consumers would be positively affected by a high-quality bathroom experience. It can leave a lasting impression and send a message that the organization exudes quality and has a special personality.

Just because you don’t need something doesn’t mean you shouldn’t invest in it. The reputation of your organization is worth the money!

Business and Supporting

In my experience, small business owners frequently do not spend enough money on proper marketing and advertisement.

My own rule of thumb is to invest 5% to 8% of your target gross sales. This means that if you want a business that produces half a million dollars in revenue, you can start investing $25,000 to $40,000 in ads now.

Once you’ve been fuelled with proper marketing investment, your business should be on the way to achieving your target. Evite spending based on where your business is today; instead, spend based on where you expect your company to be tomorrow. If this formula is not legitimately feasible for your company, take it to the next level. 

The idea here is that the popular 5% to 8% revenue philosophy might be too low for real growth, particularly if you are a low-income start-up or a company in a highly competitive industry. Alternatively, consider two percentages of marketing expenditure: one that sustains your current gross revenue and one that promotes growth.

Never refuse insurance

Smart company owners use insurance to cover themselves from damages. To my knowledge, many company owners have been struck by life events they did not expect. A simple umbrella package or program that pays you cash if you can’t work due to injury or sickness can make a difference when dealing with an unforeseen situation.

It isn’t frugal to neglect insurance; it’s cheap. And it could cost you something. If you don’t have the right insurance, have it now. It just isn’t worth the risk.

Cover all the bases when it comes to marketing

Make sure the customer support and sales staff have every tool they need for success. That’s what I call marketing insurance.

The idea is to take every possible step to ensure that your marketing dollars (5 to 8 percent of the target gross revenue described above) actually turn into sales.

It’s a bad business to spend money on ads just to neglect stuff like educating your receptionist who answers the phone or purchasing equipment and supplies for your sales team that closes deals with customers. It’s almost always money well invested when it comes to customer engagement systems, product clarification sales presentations, and new equipment for the employees.

In short, if you’re going to pay money to get your phone ringed, make sure there are no broken tiles in your sales process chain.

Not Everything Can Be DIY

In general, I agree that so many people are overconfident when it comes to projects that professionals should do. The ability to save money and “do it yourself” also has unintended consequences.

Unfortunately, many of those unforeseen effects are not readily detectable in the company. For example, a business owner who wishes to save money by creating his own website may never know that his company is struggling because of his desire to save a few thousand dollars. Branding and marketing DIY ventures often backfire because they seem to yield low corporate credibility.

Construction and maintenance projects can also prove expensive if professionals do not do them. I once had a new franchisor who asked me about a plumbing problem. I advised them not to mess with plumbing or electrical equipment, despite the effort to save money. 

They ignored my advice, and like clockwork, I got a desperate phone call when this franchisee’s brand-new facility was flooded with sewage. My advice for the second time? Shut down the water main, and call the plumber!

While some DIY flops can generate those “we’re going to look back at this one day and laugh” moments, several can severely stifle business growth due to lack of awareness. The smart company owner knows their strengths and recruits experts to fill a wide variety of holes.

Learn from the people who came before you

The cheap business owner stops investing money when he should and should. Being frugal in business means that you look beyond the short-term solution and understand the big picture’s implications in terms of time and resources.

If you think about how investing or saving a small amount of money today will affect you tomorrow, then you’re well on your way to becoming a smart entrepreneur. 

The last tip in this article is to try to seek advice and encouragement from others who have gone before you. Education and training, particularly from successful entrepreneurs, is always a good investment option, one that can not only save you money but also help you grow and grow to your heart’s content.