There’s always going to be someone that is better at saving than you are. Whether it’s that thrifty mate of yours that has the accountant that’s just a little fancier than yours, or a fellow business owner that just seems to have the knack for squeezing the last penny out of suppliers, there’s always someone that’s a little bit better.
At the heart of these types of abilities isn’t some magical force, rather it’s a trick or two, or the knowledge of a cheaper way of doing things with the same result. In much the same way that a magician can impress the gullible into thinking magic is a real thing, so too can the savviest of business owners seem to be on another level when it comes to keeping costs down and profits up.
Like everything though, once you learn the trick behind how they do it and arm yourself with a little knowledge, those performances will look a lot more like sleight-of-hand than a mystical power.
With this in mind, Nett set out to find some of the thriftiest small business owners to share their secrets and the story of how they save money.
Anthony Khoury learned the importance of hard work from his father, who runs his own pizza shop, and where Anthony would put in 80-hour weeks before starting a business of his own.
“I absolutely hated it,” Anthony recalls. “The money was good but the hours were soul-destroying. Doing the same work day after day drove me crazy.
“I ended up telling my dad I could not do this anymore – he was far from impressed,” he adds.
At the time, Anthony had a friend that was selling promotional fridge magnets in the United States of America. He figured he could do the same thing here but with a different product.
“I went through five or six products that didn’t stack up margin-wise,” he says. “One night my friend mentioned stickers and that’s how the idea for [my first business] was born.
“The Australian dollar was around 55 cents back in 2003, so exporters had great opportunities to compete with US companies. I worked out my break-even point and after about 3 days I knew the idea would have legs.”
When he was putting that business together, Anthony researched 180 different printing companies before he found one that could do exactly what he wanted.
“100% of the work was outsourced so having a reliable printer made the difference between starting the business or trying to find another product to sell.”
He left behind the pizza place back in 2003 when he started his first business from his parent’s study and went on to launch a successful online store selling promotional products. Anthony has leveraged this experience into starting a new consultancy firm called The Small Business Mentor and sees a few common mistakes when it comes to costs amongst his clients.
“I think the biggest mistakes they make are startup costs,” he explains. “Too many times I see people spending a fortune on their websites, getting their branding done, or leasing out large premises and starting with too many staff.
“Business is all about adapting – it is very easy to upgrade your website or put on staff or lease a bigger building. However, once you have already spent a fortune on your website and branding, signed a long lease, and employed a lot of people it is hard to go backward.”
While it is possible to go back and correct the mistakes made during startup, it can be a painful lesson. You are likely looking at a hefty penalty to break a lease with your landlord, cutting staff, and the always-painful reduction in the marketing budget. Anthony strongly believes that one area where small business owners overspend is with their website.
“I have changed my website 10 times over the years,” he explains. “It started off as a $500 site, then as I made money and received feedback from clients I upgraded it.
“Nothing is set in stone with your business. It is better to crawl first, kick some goals, and then start spending as you grow.”
Anthony believes the reason many small businesses don’t make it out of infancy is that their costs blow out of control. The idea could be a great one, but it won’t get anywhere if the costs are not managed properly.
“Once you run out of cash, you run out of oxygen,” he says. “It’s a shame because so many people could hang on longer if they didn’t go overboard with their initial outlay. There should always be a buffer just in case your sales don’t go as well as you projected them to.”
Being a business advisor, Anthony is a big fan of practicing what you preach. One of his methods is having his staff ring around to a bunch of different suppliers every year to see if the business can save money on things like ink cartridges, stationery, and boxes.
“I also like to employ people that are multi-skilled,” he says. “Instead of employing 10 people, I employed six. Once they finished their tasks, they could move on and help out the other employee who was in charge of something else.
“Furthermore, I didn’t have staff that had me over a barrel,” he adds. “In hospitality, if a chef didn’t turn up to work, you would literally have to stop serving meals if no one could replace them. I wasn’t going to be at my employee’s mercy.”
These types of strategies have helped Anthony to keep wages at less than 10% of the company’s turnover, and if there is a particularly busy month where sales go up 20%, he doesn’t have to employ more people as he just leans on the multi-tasking staff.
Jeremy Levitt was a lawyer working for the top-shelf firm Allens Arthur Robinson when he left it all behind to launch a startup. He teamed up with Oliver Pennington and Daniel Sabados to start Service Seeking back in 2007, which lets people list a job they need doing – like having air conditioning installed – and tradespeople and service providers will reply with offers and rates to do the job.
“We used to use Yellow Pages and [search engines] to contact tradies but it was a waste of time,” Jeremy says. “You’d call around but businesses were too busy to answer their phones or call you back if you managed to leave a message – it was a complete fishing expedition.”
Having gone through the startup experience, and running a site that specializes in helping people find suppliers has given Jeremy a unique insight into business costs. One of the biggest mistakes he sees other business owners make is spending on marketing activities that are not measurable.
“Our biggest competitor destroyed themselves with a huge above-the-line marketing campaign focusing on TV and radio which are two channels that are notoriously hard to track and measure.
“We have internal business dashboards that report on revenue dynamically, so we always know how much money the business is making at any point in time and spend accordingly,” he says. “We forecast revenue and expenses on a monthly basis and re-forecast if we are out so we always know where we stand.”
Another measure Jeremy and his partners have put in place are to always put excess cash in term deposits and high-interest savings accounts.
“We don’t have an office in the city to keep lease costs down,” he adds. “We bought second-hand furniture for the office. We only employ marketing methods that are trackable and measurable to ensure we can bring in new customers for less than their lifetime value.
“Our business operates in a new market segment where most players are newcomers,” he says. “Because of our thriftiness and the control we have over the expense side of our business, we are profitable whereas most of our competitors are still bleeding.”
Rohan Gamble was the chief of Virgin Money in Australia before starting Mozo, a website that lets you compare the various financial plans and account types offered by the banks. One of the feathers in Rohan’s cap is that when he started the business in 2007, he set up a fully furnished office for $1,100.
“We started Mozo with zero software costs by using free services such as Gmail and Google Apps, and building our site with free software like Ruby on Rails,” he recalls. “We also sourced office furniture from other businesses that were refurbishing or moving out. We even bought a sofa from a backpacker advertising on eBay.”
Not all the moves were good ones, as the backpacker’s sofa ended up being a dud and was chucked out for a loss of $150, but the rest of the office kit-out went well.
“The total cost of running our office – turning on the lights each day and so on – represents less than 1% of our total costs,” Rohan claims.
One of the major mistakes Rohan has seen other businesses make is investing too heavily in marketing before having proven revenue.
“When developing a new business, it’s easy to fall victim to tunnel vision and assume the product you’ve spent months or years creating will be an instant success,” he says. “In reality, most businesses have achieved success after a sustained process of testing and learning – not overnight.
“When launching a new business, find marketing channels that allow you to test your product with a small investment, such as paid search, rather than
launching straight into a million-dollar television or radio campaign.”
Indy Hilditch was working as a marketing and communications manager for a major superannuation fund for many years before ditching it to start her own business. She started her online marketing and graphic design business in Adelaide back in 2008 and never looked back.
Her approach is a modification of that trusted small business cliché ‘doing more with less. This basically translates to using as many of the free tools and services that are out there to market your business, and not spending a cent more than you really have to.
“My top tip is to tap into cost-effective marketing and communication tools that will help you build your contacts and business brand,” she explains.
“Free social media sites like Facebook, Twitter, YouTube, Linked In, and Instagram provide you with opportunities to tap into your target market and industry at no cost.
“The only cost is your time, so be wise where you spend it,” she says. “Assess each networking tool to see whether it’s a good fit for your business and dedicate time each week to working on your social presence.
Not only is it good for attracting and keeping customers, but it’s also a fantastic way to increase your search engine optimization (SEO) and promote your actual brand.”
Indy is also a stickler for time management. She believes you need to make sure you get the most out of your day to maximize profits without becoming too bogged down in an individual task.
“Breaking your day up into nodes of work can really help with efficiency,” she says. “Have a read of Time Management – Tips to help you be effective by Michael Shapiro. If you decide to engage in social media, make this a priority within your week and schedule time to create content – it is supremely important.”
It’s a strategy that has paid off for Indy, as she dropped print and paid online advertising from her budget last year. She focused on social media and creating a strong online brand to stay connected with customers.
Something that is important to remember here is that social media won’t be a perfect fit for every industry, as it’s only useful if your target market is active there. It’s also important to weigh up the time you will spend on it before getting involved, as you need to slowly chip away at your social media presence before it can be built and optimized to the point where it can serve as a replacement for more traditional forms of marketing.
Another free tip that Indy has is to be on the lookout for industry groups on LinkedIn. She has joined several of them and believes them to be a fantastic resource with lots of tips that have helped her reduce costs.
Anthony’s top 5
Anthony Khoury is the founder of The Small Business Mentor, and we asked him for his top five money-saving tips.
1. Buy in bulk. You know you are going to buy certain products eventually so ask your supplier what the quote will be in different quantities. The best example is printing. You can buy 1000 brochures for $600 yet get 10,000 brochures for $1,499. The cost is all in the setup. Over time, you save a lot of money with this strategy instead of buying things in smaller quantities.
2. Skype: use Skype all the time instead of using the phone. This is especially the case with interstate clients, as well as those based overseas.
3. Every time we buy something we get five quotes no matter what. This has saved us an absolute fortune. Unfortunately, there are some unscrupulous people out there who will try and rip you off once they know your business is successful. They figure you can probably afford it so they charge whatever they like.
4. Each year we call different companies for insurance. Insurance is a significant cost so we ensure that we keep the insurance company honest. More often than not, we change insurance companies each year as competitors charge less.
This is very interesting as I believe insurance companies must change their risk profile from year to year. It shocks me how their quotes compare from year to year.
5. Try and pay off credit cards at the end of each month. In nine years I have never paid a cent in interest. I check my credit card account every single day on the internet. This avoids surprises as well as theft.
Jeremy’s fast five
Jeremy Levitt is a cofounder of Service Seeking and has five quick tips for cutting costs.
1. Put excess cash in term deposits and high-interest savings accounts.
2. Utilise forms of marketing that you can track, measure, and switch off if revenue is less than expected.
3. Don’t spend huge sums of money on fit-outs and furniture. Lots of businesses go bust and liquidate their furniture at a fraction
of the new price.
4. Make sure you have good reporting systems in place.
5. Forecast and re-forecast revenue and expenses every month to keep track of profitability.
The financial five
Rohan Gamble is the founder of Mozo and former CEO of Virgin Money in Australia. He has five financially driven tips.
1. Cut costs wherever you can. During the slow summer period, save energy by keeping non-essential equipment off, lower contractor costs, and ask staff to take extra leave without pay.
2. Look for cheaper resources. Whether that’s second-hand office equipment, free software, or even cheaper human resources. Students and interns can be a valuable resource that brings you the freshest and latest thinking at a cheap price.
3. Make sure your banking and financial products are the best value you can get. Obviously, that’s something Mozo is across on a daily basis, given our line of business. But there are many SMBs and startups out there who could be getting a far better deal from their bank but don’t realize it.
4. Outsource as much as possible. If you don’t need a full-time staff member, or you only need someone for a temporary project, hire a freelancer. For example, we found our copywriter through a freelancer site where you can post your job description and let people bid for the business. Generally, when it comes to things like marketing, technology, and customer relations, you can outsource a lot of work with few overheads and no ongoing costs.
5. Fix your payment terms. Xero’s research found that if you want to be paid within 30 days, set payment terms at less than 14 days because people tend to pay two weeks late. Getting paid promptly can make a big difference to your bottom line. Mozo has gone with 10 days as standard now.
Indy’s top five
We asked Indy Hilditch, founder of Individual, for her top five cost-saving tips.
1. Tap into free online marketing tools, assess, and begin dedicating time to engage.
2. Start blogging as it’s a fantastic way to promote your business, services, and products as well as increase your SEO and ratings.
3. If you or your staff can’t do it, outsource to a freelancer or contractor – don’t waste time fiddling – concentrate on what you and your team do best.
4. Shop around for the best price on printing – there are several online printers that are very competitive and offer fast turnarounds.
5. Only buy what you need – when it comes to collateral, start small and think big. Eventually, you’ll catch up to that way out there pipe dreams.