‘Cash is king’ is a phrase every adviser has shared with me. Run out of money and your business dies…
For business owners, the truth of these words is seldom distant and is most acute in the early years. Entrepreneurs must learn not only how to manage money but also how best to buy and maximise spending. So how does a money-saving mastermind operate?
To understand the buying behaviour principles and necessary actions to take, I’ve shared my top tips for becoming a money-saving mastermind below.
Becoming a money-saving mastermind
The following 8 suggestions are not exhaustive and if you have other ideas please do send feedback or reply to this post.
1/ The value of free
Increasingly resources are available for free – at least for a trial period. If, for example, you seek new software, an intern to help grow the business or are thinking of using an event for promotional purposes, look to pay nothing initially.
You’ll probably need to ask and/or explain your longer term plans to a supplier, but if negotiations are successful (see below) and you have an opportunity to at least test a resource at no financial risk, there is little downside.
2/ Everything is negotiable
Through our personal lives we learn to accept what the price tag says or the first offer that’s made. Business is different! Everything is negotiable – although you won’t always be successful. Learning how to negotiate so you become a money-saving mastermind is a critical skill and it’s never too early to start reading around the subject and/or attend a good training course.
There’s insufficient space within this post to highlight how best to negotiate but I highly recommend the following sources. Huthwaite International has a great training reputation and this article from Mindtools provides all the fundamental principles underpinning effective negotiation. Invest time. practice and review performance and you will save yourself a small fortune over time.
3/ Pride comes before a fall
For some, the title of ‘business owner’ comes with podium status. As a result, newly-crowned entrepreneurs falsely convince themselves that an expensive office, car and/or personal assistant etc. is deserved. This mindless buying is nearly always stupid, but needs to be understood because many are susceptible.
Start-ups can over-exaggerate their business plan financial forecasts and produce data with which actual demand never keeps pace. At the outset the picture looks rosy. Then sales people come knocking (and explain how goods can be paid off over months and years) and signatures are sadly too easily provided. In little time the new owner of the goods regrets the decision. Worst of all, like the well-groomed captain of a sinking ship, the owner is sometimes too proud to admit to their failings. Apologies if you’ve just test driven a Jag.
4/ Quality versus price
Cost is typically the focus of the money-saving mastermind. However, buying low quality goods (because they are cheap) can cost a business much more in the long-term. It’s vital that both price and quality are considered when making a purchase.
Employing someone for example, because they are cheaper than others, can have disastrous consequences. Whilst money might be scarce, it’s important to spend as much as you can afford to find the very best people for your business. Long-term, this person will make you much more than you will save.
5/ Arm yourself with information
Business owners have to make many decisions on a daily basis. Evidence-backed choices are typically sound; the worst decisions are often guesses. So, when it comes to buying, avoid making decisions without first obtaining relevant independent information.
For example, business owners are prone to spending hard-earned marketing money on little more than hunches and guesswork – especially when an ad executive calls with a ‘special offer’. Before investing in any form of promotion read this article gather background details and seek out others who may have used the service. Don’t be intimidated by salespeople who want a quick decision.
6/ Shop around and think ahead
Don’t buy anything from the first seller or website you come across. Invest a little research time and be patient. The internet is your best friend and it never ceases to amaze me how the same goods have such differing price tags.
Hotel accommodation, rail tickets, printer cartridges, stationery and computer hardware are all goods that every small business buys. Good news! Huge savings are available. For example, if you buy a UK rail ticket in advance you can save 80% off the standard fare; Ebay allows you to buy first and second-hand goods at prices you had previously not considered possible; and a number of niche businesses offer goods at a fraction of the cost of the so-called ‘leading’ supplier.
7/ Needs versus wants
When buying anything for your business, ask yourself, “do I need this or do I want it?” If you ‘need it’ then buy it at the best price by applying the other tips within this post. But if you only ‘want it’ then think carefully before proceeding.
If the amount of money you’re spending on a ‘want’ is relatively small (e.g. a restaurant meal) then the risk of wasting money is manageable. However, if you are buying a top of-the-range car when all you need for transport is a reliable vehicle, the additional high cost might threaten the business later. For more on needs, wants and economics, this short video may help.
8/ Put yourself last
In the first 5 years after starting my first business, I only paid myself what the business could afford. This meant at the outset I earned a pittance and through the period of early growth several staff earned more than me.
As the business owner you must always keep a long-term view and get over any notion that the boss must earn the most. Being flexible, demonstrating humility and putting yourself last not only saves money but also generates much greater team spirit.
Key Learning Points: Buying is an enjoyable experience, yet successful entrepreneurs must master prudence. This necessarily means understanding buying behaviour, being able to negotiate effectively and thinking rationally about all purchases, especially in the early years. Becoming a money-saving mastermind is a way of thinking but the entrepreneur must also be able to look beyond price and cost and appreciate the value of what is on offer.