Business Tips: Don’t Be Penny Wise and Pound Stupid

October 19, 2018 | Garret Norris

Businesses invest a lot of time and resources to develop different strategies for financial growth and their success. A continuous flow of cash would ensure that they’ll be able to serve their customers for years to come and move towards their goals.

But, increasing sales wouldn’t be enough. That’s why to set up long-term financial growth; businesses often need to reduce their expenses. Being frugal can either be the right call or a necessary move, but in a way, this works. Reducing your costs would help increase profitability.

However, in some cases cutting costs would do more harm than good. There’s a saying that goes (as my Dad used to say to me), “Don’t be Penny Wise and Pound Stupid Garret.”

There are times when business owners make the wrong move in an attempt to save some money and end up costing a lot more in the long run. Here are some examples:

Personnel Cuts

Every business owner at some point has faced hard times with their businesses. When the economy is in a temporary decline or the competition released a better product which results in sales tanking, it could be challenging to keep yourself afloat.

Making personnel cuts during these times is common. It’s an easy way to save on wages, but while it’s a necessary move to save a few bucks, this could harm your business in the long term.

When you let go an employee, you would also lose invaluable knowledge gathered by that person about your business and your industry. Not only would it be difficult to replace, but the competition could also use it to their advantage.

There’s also the relationship that employee established over time with customers and suppliers, and it would take a long time to rebuild that trust and good-will once again.

You should also think about how this would affect other employees. Personnel cuts would only cause for employee morale to go down. People would start wondering, fearing that they’ll be next. Eventually, it’s negative effect would trickle down to the productivity and employee retention.

Not Investing on Your Employees

Employees are the key to the success of your business. They’re basically the ambassadors of the company. They interact with customers, clients, and vendors, which means that their skills can affect the quality of your products or services in the eyes of their prospects.

While high performers would be able to perform well to contribute to the organization’s success, low performers would likely either have very little or none at all. Ask yourself, what value are you getting from your business having this person in place? You may have to make some hard decisions. Certainly you will have to have a crucial conversation.

However, people would less likely accept it if they weren’t given a chance to improve. Investing more money on your low performers by providing coaching and training would help them improve. Encourage a lateral movement to a position that might better fit their strengths. If nothing you do clicks, then letting them go is the right call, but it should be your last resort.

While there might be an expense in doing this, there would be a tremendous gain in doing this as well. Replacing people would lead to recruiting and training new people that would be more expensive than training and coaching the person you have now.

This could also be a good investment if you ever need any additional help in the future as people want to be included in businesses interested in the growth of their employees.

Buying Cheap Equipment

The right equipment can help your business increase productivity and sharpen its competitive edge, but a lousy purchase can do the exact opposite.

Sure, buying discount computers or refusing to pay for a few software licenses could help you save cash up front, but these actually affect your financial growth. Discount computers could have unexpected issues. It could malfunction or break down at any time which could put you behind schedule, or at worst cases halt all running operations altogether and make your staff sitting ducks.

These don’t mean that you should buy every state of the art equipment available in the market. You need to give your people the tools they need to do their work properly. Again, it might cost more than you would want to pay for but those costs pale in comparison to the money you lose from not having them.

There’s nothing wrong with being a penny wise to save money. Being careful with your money is essential to becoming successful in the industry, but running a business includes being brave in investing and taking risks every so often. Saving money isn’t about avoiding large payments or cutting back, it’s about managing your finances to prevent an eventual financial loss that your business can’t afford.

For more tips on how you can drive your business to success, you might want to check out here at Business Coaches Sydney. Contact us at 1300-833-574 to learn more.

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Garret Norris

Garret is the founder and CEO of Business Coaches Sydney and through his company, remains dedicated as ever to use his training and real life business experience to meet his passion to see business succeed through disciplined management, creative marketing and committed client service.
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