Being disciplined and saving diligently could make the difference between whether a small business survives or shuts its door in a tough economic climate. The ability to save is also one of the most effective ways to avoid becoming over-indebted and putting credit to use in the most efficient way possible. Ultimately, a strong focus on saving equips a business with the flexibility to seize new opportunities, adapt to market changes, and secure its future in a competitive landscape.
Most people associate saving with not spending money or dedicating funds to a savings pool or account. However, saving is as much about not spending money as it about spending money optimally. Small business owners who are good at saving are proficient at both these aspects of money management.
Want to know if you fall into the category of a savings-smart entrepreneur? These are the five boxes you need to tick:
Saving for a rainy day
Let’s start with the basics. Small business owners who are good at saving either have – or are working towards having – a prudent reserve. This is also commonly referred to as an emergency savings fund to which they make regular contributions. Good savers think of their contributions to this emergency fund in the same way that they think of other expenses, such as paying business insurance, rent or utilities.
More often than not therefore, their contributions to their emergency fund are line items in their budget that get allocated at the beginning, rather than at the end of the month. In times of low profitability or unforeseen events, having this emergency cash supply can make sure that wages and other essential expenses can be paid, without the need to take on unnecessary debt.
Keeping expenses in check
Small business owners who are good at saving are also good at spending, in the sense that they never allow their expenses to accumulate unchecked. To do this, they conduct regular financial check-ins to track whether their spending has remained on-budget and whether or not their budget needs to be adjusted with time. By staying on top of their budgets, they can cut unnecessary and hidden costs, curb exorbitant spending in certain areas and negotiate prices where possible.
Short-term spending for long-term saving
Diligent savers aren’t spendthrifts, but that doesn’t mean they’re penny-pinchers either. Entrepreneurs who know how to save are also acutely aware of the fact that some expenses are more like investments than liabilities – that by spending money strategically now, a vital part of their business’s operation could reap the benefits later.
This applies to maintaining equipment and machinery for example. Holding back on conducting safety checks and regular maintenance could end up costing large amounts in future when that equipment breaks down and operations are disrupted or come to a complete stop.
Also, making sure that the upkeep of equipment is taken care of can help avoid unnecessary workplace incidents or injuries in future. In this sense, good savers understand that sometimes, by spending money wisely now, they can save money in indirect way later on.
Laser-focus on resource efficiency
Entrepreneurs who are on top of their saving habits are more than likely obsessed with using their resources efficiently. This applies to every kind of resource a business may need, from human capital and technology to assets and raw materials.
Good savers aren’t afraid to change the way they use their resources in order to ensure maximum efficiency. This could apply to the use of software packages and tools, optimising supply chain logistics, renegotiating supplier contracts, implementing energy-saving measures, and adopting flexible staffing solutions to match workload demands.
Customer retention as a saving strategy
Lastly, entrepreneurs who are good at saving also understand that the cost of retaining a customer is infinitely cheaper than the cost of acquiring a new one. For this reason, they will successfully save money by focusing on areas such as relationship building and encouraging customer loyalty through strategies like loyalty discounts and rewards, exclusive offers and creating a community around their brand through social media engagement and events.
These efforts can be effective in retaining customers but also in fostering word-of-mouth marketing, further reducing acquisition costs and enhancing the business’s reputation. In the long-term, these savings can add up and make a difference to the bottom-line.
