Every time I've tried to be cheap, it has ended up costing me more.....
A while back when I was a partner in a wholesale and distribution company, we reserved a booth at a large trade show in Las Vegas. My partner decided to take a 20 ft, trailer filled with all the trade show displays, attached to a large RV and drive it from Portland, OR to Las Vegas, NV. I decided to take a flight and meet up with them in Las Vegas. After arriving at the trade show, my partner noticed that most of the attendees had loaded their trade show displays into pallets and had shipped them over. According to the trade show information brochure, this was the recommended way of bringing in displays. Although my partner was aware of this option, he wanted to save costs and do it himself. At the time, shipping the displays seemed expensive, but after time, fuel, and the RV rental was taken into account, the cost was actually much less. At the end of the trade show when we were loading all of the displays back into the trailer, he looked at me and said, "Every time I've tried to be cheap, it has ended up costing me more."
As an owner of a business, you realize that every dollar saved is a dollar that goes directly into your pocket. It might be for this reason that many business owners try to save as much money as possible. In a lot of small businesses you must be able to save money just to survive. However, sometimes we tend to forget the indirect costs associated with "saving money." Besides the traditional direct costs associated, owners tend to forget indirect costs such as time, delivery costs, opportunity costs, and cost of failure.
If you are not a sole proprietor, but rather a partnership, you need to be aware of the time you are "billing" your partnership. For example, I was involved in a partnership in the restaurant industry. One of my partners was the manager of one of the restaurants and he was focused on saving the business money. With all good intentions, he would shop at Costco, Cash & Carry, Restaurant Depot, and etc. to save some money. For example, he would buy the cooking oil from Costco because it was $4 a gallon cheaper but drive to Cash & Carry to buy paper plates because it was $2 a case cheaper. One day I calculated his savings. He had saved a total of $12 dollars in comparison to having it delivered by Food Service of America. If we were to end the discussion at that, I would say that he is a great manager and saved the business $12, but we haven't accounted indirect costs associated with this savings. So what were the indirect costs? My partner bills the partnership at $15 per hour. It took roughly one hour to go shopping for the groceries plus the amount of gas burnt (which he was kind enough not to bill the partnership on). So this savings ended up being negative $3 and a back problem for my partner who would spend 3 days a week carrying heavy supplies. Once again, "Every time I've tried to be cheap, it has ended up costing me more."
Now, if you are a sole proprietor than your time may be a sunk cost. Thus, if you spend time after hours doing errands, than maybe you truly are saving money. However, you must still consider what you are sacrificing in order to spend that time saving money. In some cases you are paying another employee to fill in for you while you spend time saving money. In this case you would have to take in consideration the amount of money you are paying that particular employee to fill in for you while you are out "saving money." In some cases you need to take in consideration how much you are spending on delivery costs of actually getting the product delivered or implemented. In other cases you need to take in account opportunity costs of how you could have been spending your time to ensure more profitability such as on the phone with clients. Last but not least, the cost of failing. What if the project is a failure? What if your trailer breaks off of the RV and falls in the Grand Canyon, because of your lack of logistical expertise? What if Costco is closed by the time you get their because you didn't know what time they close of Sundays? What if you choose the wrong business software (Quickbooks) and end up wasting 3 months of your time, $15,000, the opportunity cost of doing more business and the headache?
During my wholesale & distribution time, I had merged my import & export company with a clients wholesale & distribution company. My new partner had already invested in Quickbooks as his primary business software. Quickbooks was definitely the cheaper solution for a business software but lacked most of the needs that a wholesale and distribution company would need. However, we got really creative and bought multiple Quickbooks POS licenses and upgraded them to PRO/Multi-Store editions in order to get the system to the level we needed to manage that particular type of business. From my partners prospective, this initially seemed like a $1,000 business software investment. It ended up costing at least $5,000 in software and at least $10,000 in implementing it in house. At the end we had a failed system that didn't do half of what we needed it to do. Because my partner was in it $1,000, he did not want to eat his cost and go with a more suitable system like SAP Business One. If we would have gone with SAP Business One we would have probably spent the same on license fees.
"Every time I've tried to be cheap, it has ended up costing me more."
Reshad Kazimee
