28/02/2024

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Three Things That Businesses Shouldn’t Skimp On

Three Things That Businesses Shouldn’t Skimp On

Businesses need to optimize costs to survive and thrive — that’s non-negotiable. We have a lot of ways small businesses can smartly and efficiently manage their finances, which every business owner should read into. 

However, businesses can go wrong with trying to shave off expenses in several ways. Some might be readily apparent, but some aren’t as cut and dry as we’d like. So here are three aspects of business that you should not skimp on. 

Saving on Salaries or Benefit For New/Existing Employees

A few years ago, I talked to a group of business owners about how they structure the compensation packages for their employees.

One of them told me that he was saving a lot of money by offering 75% of the minimum wage for the first six months — which was legal in his part of the world. After that, he brought up the salary to the provincial minimum wage and increased his employees’ salaries depending on their employment duration, not performance. His reasoning behind this structure was, “If they want to stay and earn more, they will stay and earn more. I reward commitment and loyalty over everything else.” 

So it was no surprise to learn that his employee turnover rates were so bad that he needed to recruit a new person every month. Then, like our typical foregone conclusion, his business closed down a few short years later. 

Labor costs typically represent the largest chunk of business expenses, so some small business owners might be tempted to cut back on salaries and benefits to save a few bucks. But doing so has serious consequences, and they all stack up on one another. Here are some of them: 

Morale and Incentive to Perform

Figuring out the objective cost of talent and ensuring that your company can shoulder the expenses is a delicate balancing act. Offer high, and cashflow goes negative. Offer too low, and your employees might not be motivated to work with their full effort or work at all, which could potentially lower earnings. 

Employees who don’t feel adequately rewarded tend to disengage from their work, leading to a loss of morale and decreased productivity. Give it enough time to fester, leading to employee resignation, which becomes a new problem of its own. 

Loss of Talent

Whenever I hear, “The grass is greener on the other side,” about their employees leaving, I’m tempted to correct the speaker by saying, “No, the grass is greener where you water it.” This reasoning applies heavily to your people. 

Skilled talent and experienced employees will rightfully seek better opportunities if they feel like they’re being underpaid for their work. This creates an empty space where they used to be in the workflow, potentially impacting and delaying several processes as you scramble to find a replacement. Whatever skill or institutional knowledge the departing employee has will also be lost. And if you think all those years of experience and development can be passed down to other people within the typical 2-week notice period, then I have a bridge to sell you. 

Also, skilled and experienced employees tend to act as a constant in the company, and losing such individuals may affect your other employees’ morale. Rebuilding what was lost can cost a lot of time — and a lot of money. 

Cost of Hiring New Talent

It takes 24 days to find a new employee on average, and the process can cost the company up to $4,000. Of course, this highly depends on your industry, the nature of your work, and how on-point your recruitment process is. The rise of hiring remote and international workers may present a way to save money, but not all businesses can integrate this type of work. 

At the end of the day, business owners need to realize that losing vital, talented, and experienced employees can mean significantly more losses in the long run compared to adjusting or increasing their benefits and salaries.

Saving on Essential Tools and Equipment

One recurring complaint that I hear from business owners is how much money it costs to buy quality equipment. Computers, software, machinery, everything is a drag to their potential earnings, so they find ways to cut costs. Again, saving money while running a business is an essential, even admirable, way of thinking. But it might be time to rethink your strategy when your cost-cutting measures start cutting into your work or product quality. 

Thinking About Pirating? Think Again

Look, I get it. Sometimes, dropping $199.99 for the latest Windows License or $20 monthly for the Adobe Suite doesn’t make sense, no matter how essential they are for your business. So, do you stick with your 12-year-old Windows 7 Ultimate for business computers? Or you download bootleg copies off shady websites to save a few bucks. Or do you find an unofficial key management service (KSM) to unlock your software’s full product version? You’d think that it’s common sense not to do this, but I’ve had a few owners come up to me and actually recommend websites and files to download. 

Not only is this practice illegal and could potentially cost you up to $150,000, but you’re also exposing your data and business to security issues. You’re unsure what’s running in the background — spyware, a ticking time-bomb ransomware, a daemon, or any malicious software. It might run fine now, and the person who recommended the software might swear that they’ve been using it for years without any problems, but who’s to say that it won’t have any issues? Data breaches don’t happen overnight, and your computer might be already on the list of targets to hit. 

You may also have problems running legitimate software on pirated platforms. And if you do have problems — which, I assure you, we all will at some point — you can’t contact proper customer support channels and ask for help. 

It Pays to Invest in Quality — But Do it Wisely

The best way to find the best equipment for your business is to do a full assessment. Some businesses have their own processes, but I’ve found that answering these questions can serve as a solid foundation for the search: 

  • What are your current needs?
  • What are your anticipated future needs?
  • Do you want to future-proof your equipment?
  • Is there an upgrade path for future developments?
  • What’s your budget?
  • Have you considered the cost of ownership (maintenance, energy consumption, repairs)?
  • Does owning the equipment come with additional regulatory or tax costs?
  • Is there any way to test the equipment before deployment?

Once those questions are answered, it’s time to look for the most applicable tools and equipment that fit your specifications. 

Saving on Green Initiatives

Many businesses are implementing green initiatives to contribute to environmental preservation. Most of the time, the big corporations we see on the news announce their new, shiny, environmentally-friendly programs. However, experts stated that small businesses have small businesses have a more considerable impact if we’re going with pure numbers. Almost 99% of businesses registered in the US are considered “small,” so having a concerted effort from their sector can yield significant results. But it may entail additional costs.   

Upfront Costs Aren’t Everything

Now, I’ve seen a few smaller businesses go on social media to announce they are “going green” to attract environmentally responsible investors and consumers. So they initiate energy-saving processes, install solar panels, buy electric vehicles, segregate wastes, and track their carbon footprint. However, I’ve also seen a few of them suddenly balk at the upfront cost of implementing such programs. This is understandable, but this alone shouldn’t deter you because upfront costs are not the only thing that matters. 

Electric Vehicles Are In

Let’s look at electric cars, arguably the current face of environmental preservation. A lot of new models are coming to market, and we’ve been seeing slight price reductions for the most part, so a few small businesses are looking into buying one. We’ve all heard that electric vehicles can be charged with home chargers, which is perfectly fine for typical home users. But these chargers take longer, and public chargers might not be as widely available in your area. 

So you’re left with the choice of installing a charging station for business use, which can cost you anywhere between $1,200 and $6,000. Depending on your finances, this can be quite a huge investment, especially considering that this goes on top of the EV’s actual cost. 

But it doesn’t mean you need to sacrifice profitability to align with your eco-friendly goals. Considering an EV’s lifetime savings on gas consumption, it might be a viable option. Additionally, you can apply for several government programs and incentives to lower the overall cost of your EV implementation. So, you don’t need to skimp out on your ESG initiatives — you just need to be wise about their implementation. 

Conclusion

Business owners have many options for saving, but they must prioritize investments in areas that contribute to long-term sustainability and growth. Like any surgeon, you must be careful where to make your cuts because the wrong one can lead to losing talent, finances, or reputation. Strategic financial decisions today can pave the way for a resilient and prosperous future.