When we hear the word frugal, we usually associate it with something people do for household expenses. It’s a word viewed in a negative way. It makes us think we can’t ever spend any money or buy new things. And most of the time, it’s not a word people associate with running a business. But if a business owner is frugal, she can usually build her business faster and increase profits faster. Running a business frugally also helps reduce stress associated with business ownership.
Let’s focus on how you can cut back on your spending and increase profits with 7 easy-to-follow tips.
1. Budget carefully
If you don’t have a business budget set up yet, it’s important to set aside some time to create one (See my earlier post “5 Budgeting Mistakes Business Owners Should Avoid.” You absolutely must know what you have coming in each month versus what’s going out. How else can you find out if you’re spending on unnecessary items so you can cut back? This will help your bottom line which means one thing—more profit in your pocket.
2. Analyze ruthlessly
Go through your budget with a fine tooth comb. When I say analyze, I mean analyze everything. What are you spending on advertising? What is the return on investment of those advertising dollars being spent? What about outsourcing—what do you pay contractors? Are you seeing a return on that investment?
But take it one step further than just analyzing places you’re currently spending money. Create a system so you have to analyze any future investments. You want to make every effort to figure out if it’s going to be worth it before you actually spend the money.
3. Consider free software and applications
One of the easiest ways to run your business frugally and to pocket more profit is by using free versions of the programs you need to run your business: e.g., budgeting or invoicing tools, Skype, etc. Use Google to find these programs (i.e., type “Free graphics program” in the search box), or ask around in forums or from business associates.
Cautionary note: Just because something is free, however, doesn’t mean it’s always the best choice. With malware and viruses, etc. you need to do your due diligence and research the different applications and software that are free. Because they’re free, they’re often what’s known as open source, and using open source products definitely comes with a risk.
5. Shop by comparing
Whenever you’ve got something to buy—from office supplies to office vehicles—be sure to shop around and get the best price. At some point, of course, the time it takes to do this is better spent elsewhere, but try to identify and use sources that give you good products and services at a great price. Develop a relationship with them, when possible, and take advantage of sales and special offers.
While outsourcing might be a place you’re spending too much money, it is often the smartest investment you can make if it frees you up to generate higher level business.
Yes, you probably can do many of your outsourced tasks yourself, but you have to really think about whether it would be better for you (your business) to have someone else do these tasks instead? For example: if your Virtual Assistant handles your customer service (help desk tickets, emails, etc.) and it takes 8 hours a month and they charge $30 an hour, that’s $240 a month for VA services. That may seem like a lot of money to spend on something you can do yourself, but because your VA isn’t emotionally attached to your business like you are, they can handle that customer service more easily. So if a nasty email comes through, they won’t spend hours dwelling on it and wondering how to respond back. They’ll know the procedure (give the customer a refund, etc.) and just do it. No hard feelings. They’ll also get in there and get out. What takes them 8 hours a month could take you 8 hours a week, and that’s time you can focus on the money-making projects instead.
Running a frugal business means you have to spend money on the things that make sense, and outsourcing is often going to be an expense that makes sense.
5. Barter, partner, and negotiate
Unlike traditional outsourcing, there may be some things you can outsource on a less expensive scale, sometimes even free!
Look for services or products that cost less. Let’s say you have a product set up and ready to launch, but you don’t know how to write sales copy. You found a copywriter, but they charge $500 to write one sales page, and it’s not in your budget to spend that kind of cash.
Perhaps there’s someone with whom you can barter.
What product or services do you offer that could be a good fit for someone who does copywriting? Approach them with a win/win situation – the barter has to be beneficial to both of you for it to be a good idea.
Voilà, you now have your sales page ready so you can launch that product, and they now have, for example, five hours of coaching with you (or whatever you decide you can offer).
6. Leverage professional memberships
If you belong to a chamber of commerce or an industry professional organization, they have often negotiated excellent pricing on things such as insurance, office supplies, etc.. Scope out their membership benefits and see if any can save you money.
If those organizations offer you any kind of free publicity—an ad on their website or publication, for instance—be sure to take advantage of it.
7. Recycle for profit or charity
When you buy new equipment, sometimes you can trade in or sell your old equipment. Always ask! If you choose to donate it to a charity, perhaps there’s something that charity can do for you: list you on their website or in their newsletter; or provide volunteers to help you the next time you have an event and need assistance.
I have one final bonus tip for you – take a look around your office. Can you cut back on office supplies (do you really need all those pens, sticky notes, etc.?). Is there anything that can be bought in bulk? Sure it will cost more upfront, but in the long run you’ll save. What about reducing how much paper and ink you use? Is there any way you can cut back on electricity use? Can you cancel that landline phone you’re paying for and use Skype, Vonage, or Google Voice instead? Do you really need to subscribe to that newspaper?
I bet when you put some time and effort into looking at your business and everything you spend money on, you’ll find some ways to cut back. Start being more frugal and watch how quickly you’ll increase profits.