Being frugal and finding ways to save money for your business are good things. They help you instill a lean operating mentality, and create discipline to optimize every dollar spent.

Anyone who’s ever bootstrapped a business knows all about the art of doing more with less. Stretching budgets can be a survival skill that keeps you always looking for ways to save a buck.

But being too much of a tightwad when it comes to spending money can hold your business back. Some business owners don’t merely visit Cheapskateville, they set up shop there permanently. Avoiding unnecessary expenses is one thing; being a perpetual penny-pincher driven by fear is another.   

Being a tightwad in the wrong places can damage your brand, demotivate employees, and cheapen your product or services in the eyes of customers.  

Try submitting each proposed cost saving measure to this litmus test: What are the possible short- and long-term effects of this move. Will it save my business money now, but hurt profits later?  

Here are five areas that can cause trouble when a small business pinches pennies too tightly:

Tightwad Trouble #1: Skimping on employee comp. Excessive tightfistedness on payday sends a message to your employees: “I place a low value on you and what you do for my business. I don’t see you as a person with talents and unique abilities, but as a debit on my monthly expense report.”

And that’s the kind of message that sends skilled employees running for the hills, costing you money in lost productivity, turnover and customer dissatisfaction. Especially now – in an era of labor shortages and competition for the best workers – being a tightwad in this area can be damaging.

Tightwad Trouble #2: Cut rate or DIY bookkeeping. Too many boss-designated bookkeepers don’t completely know what they’re doing. They may use unnecessarily broad headings, classify items incorrectly or make other mistakes.

Sooner or later, your accountant (or IRS) will charge you to correct these mistakes, saving you nothing. An even larger problem is that it’s easy for an in-house bookkeeper to steal from the business. Consider hiring a third-party bookkeeper that reports directly to you.

Tightwad Trouble #3: Skimping on legal services. A business owner I know went through a touchy legal matter a few years ago. When she described the matter to a colleague, the colleague told her this: “Your attorney is a nice guy, and he’s good with general matters, but for this situation you need someone who can strike fear in opposing council.”

The business owner took her colleague’s advice. “And I’m so glad I did,” she says. “The matter went away quickly and was some of the best money I ever spent on high-priced billable hours.”

Tightwad Trouble #4: Thinking you’re a graphic designer. We’ve all seen businesses that made a poor impression because their branding, marketing and sales materials were scruffy. Perhaps their signage wasn’t professionally created or their forms, brochures, stationery and website were poorly designed.

Customers will first – and always – judge a business by its covers. So if you want to be paid like a great business, you also need to look like one. There are many talented freelance graphic and web designers who can make your materials – both digital and print – look great. And many of them are reasonably priced.

Tightwad Trouble #5: Thinking word-of-mouth marketing is enough. Business owners tell me all the time that they believe in word-of-mouth marketing (WOM). That’s great, WOM can be powerful, but it’s not enough. Few if any highly successful small businesses owe more than a third of sales to word-of-mouth. If you try to save money by not budgeting for marketing, you’ll save your way right out of business. You must spend money to attract customers.

Bottom line: If you skimp on something that directly affects customers or compromises your ability to operate efficiently, your efforts may come back to bite you. It’s good to be frugal. But it seldom pays to be a full-on tightwad. 

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About the Author(s)

Daniel Kehrer

Daniel Kehrer, Founder & Managing Director of BizBest Media Corp., is a nationally-known, award-winning expert on small and local business, start-ups, content marketing, entrepreneurship and social media, with an MBA from UCLA/Anderson. 

Founder & Managing Director, BizBest
penny pincher