Week 9 – Frugal vs cheap business owners, there’s a difference.
8 MIN READ
As a business owner, when you examine operating expenses, it is not uncommon to start thinking you are spending too much. Often, that leads to thinking the only solution is to hack away at the costs. You end up closing the purse strings as tightly as possible.
However, cutting expenses without ever evaluating the expense’s value to your business is the last thing you want to do. It is that behavior that causes business owners to become cheap vs. frugal. Might you be thinking’s, what’s the difference? I’m saving money either way. While that may be true, cheap owners often compromise business effectiveness and efficiency to save a buck.
While this may have saved you money in the short run, you will never know how much you lose in lost revenue and productivity by choosing the cheapest option vs. the most valuable solution for your business.
So, what are you saying? Can’t I save money and be effective at the same time?
Of course not!
That’s why you need to change how you think about your expenses. It would be best if you thought frugally vs. cheaply. This new mindset allows you to maintain efficiency and productivity while reducing costs by focusing on a solution’s overall value to your practice. Not just the upfront cost.
Here are a few ways to help determine if you are a cheap vs. frugal business owner.
1. Cost vs value
Focusing solely on the cost of a solution is the first sign of being cheap vs. frugal. If you are not willing to entertain a possible solution simply because of its price, you are most likely acting more cheaply than frugally.
A frugal business owner will evaluate the problem they are trying to solve. Determine what features will help solve it. Then review their financial plan to determine how much of their operating expense they can allocate to spend on a solution.
Want a more in-depth planning guide? Check out our detailed guide on SMART Goals, and download our free SMART Goal Worksheet.
Next, a frugal owner will likely determine a budget range by setting a high and low price they would be willing to spend to implement a solution. The Low end of the spectrum is what they consider a fair market price for their perceived solution. While the high end of their budget marks the absolute most, they would be willing to spend assuming they found the white whale of solutions.
Being a frugal owner means you will take the time to evaluate all possible solutions within your budget range. Not just look at the cheapest options. When assessing these solutions, a frugal owner will be looking to see which solution checks off the most problem-solving features. They can make a best-fit decision rather than a price-based one.
Unfortunately, many cheap business owners will miss out on great opportunities just because they were not open to spending even a few more dollars on the right solution.
2. Not Considering Others
There are many ways to save money, but some methods are better than others. Most business owners agree that cutting expenses at the expense of staff can be detrimental to productivity and morale.
For example, if you are looking for new management software for your business, you might be tempted to choose a cheaper option that is harder to use. However, this could end up being counterproductive in the long run. A cheap business owner may purchase the cheaper solution even though it’s harder for the staff to accomplish their job, negatively affecting productivity. However, a frugal business owner will choose the streamlined option in favor of a productive team, ultimately benefiting the company’s bottom line.
Here’s another example of not considering others. A business owner trying to save money may set the office temperature to an uncomfortable level. Higher temperatures in the office may negatively affect the morale of your staff, though a frugal business owner may make minor adjustments to the thermostat while keeping the room comfortable. While the cheap owner may have saved more money upfront, the frugal owner maintained a higher level of productivity, allowing for a smoother run practice and potentially higher revenues.
3. Falling victim to freebies
A cheap business owner is always looking for ways to save money, even if it means not getting the best possible solution. They might use multiple free software programs instead of paying for a single program that does all they need.
Saving like this can mean their business isn’t as productive as it could be. However, some business owners are willing to invest in a good solution, even if it costs money because they know it will help their business run more smoothly.
4. Short and long-term thinking
A frugal business owner is careful with their money and thinks about the long-term effects of their decisions. They might not spend as much money as other business owners. But they are more likely to see long-term benefits from their spending.
For example, a frugal business owner might invest in new software to increase productivity and revenue. Often this is a difficult decision because it might mean spending more money in the short term. However, it can pay off in the long run.
5. Spending priorities
Being a frugal owner means that you are careful with your money and only spend what is necessary. So, you might not buy the newest or most expensive things, but you will still have what you need. Whereas cheap owners don’t care about spending money wisely, they are only interested in the lowest price possible. Even if it means they have to sacrifice quality.
Therefore, you need to be aware of the difference between being cheap and frugal. That’s where profit first chiro can help your business thrive by helping you determine a healthy Operating Expense budget while not compromising your profitability or owner’s compensation.
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