October 8, 2007

Growing Your Business: You Can't Save By Saving

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I regularly encounter entrepreneurs who think they can cut corners or take shortcuts and still cross the finish line the same way they would if they had played it smart in the first place. In my family, we learned when we were kids that taking shortcuts doesn't pay off. In fact, in my family, when someone takes a shortcut in the car, it usually ends up being a "long cut."

I had lunch with a friend who was contemplating changing CPA firms for his business. He was paying a relatively small amount for his accounting services, which included primarily a tax return at the end of the year and a small amount of bookkeeping. The CPA firm had offered him a program under which they would come out once a month, look at his books, do some counseling and provide some assistance. But since the price for this extra service would be slightly more than twice what he was currently paying, he declined their offer.

A year later, an error made by his office ended up costing his business more than the cost of the monthly bookkeeping service his CPA firm had proposed. If he'd agreed to the monthly service, the error probably would have been noticed well in advance and caught right away, saving him more than the cost of the bookkeeping service.

Some might say that this is an example of a break-even situation, thus, how would he have been better off to have contracted for the extra service? The reason: by having the CPA firm review the company's books on a regular basis, there's a good chance that other problems would have been found that would have led to additional savings.

I see this all of the time - business owners who have an opportunity to engage a specialist to help them solve a problem, but who refuse the help. Why? Because specialists usually want to be paid retainers in advance for providing assistance. Business owners almost always push back at the idea of paying retainers.

Why pay a retainer? When you ask someone to work entirely on commission, you get what you pay for, and sometimes, that's nothing. If you don't pay someone to stay on top of your account, then the account that does pay that person is the account that will get the person's attention. That's human nature.

If you haven't paid, you might not get any attention. Don't be fooled - just because you are offering a commission for the placement of a candidate in a job situation or for the placement of a loan in a financing situation doesn't mean that your expectations will be met. Similarly, outside sales representatives are often paid only commission by the companies that they represent, and they represent many companies. Some sales reps will chase the easiest dollars, and when a company doesn't pay them retainers or some form of a base pay, they don't perform as well as the company wants.

You get what you pay for.

In my practice, I frequently encounter people who simply don't want to pay for advisory services. I never force anyone into a decision that they don't want to make, but I tell them that the fact that they aren't writing me a check doesn't mean that they will have more money available to take home to their families. Any money that isn't spent solving the problems a business has will leak out of the business in some other way. The money will evaporate because the value of the advice that I would have provided to the prospective client is worth 10, 20 or 50 times more than it would have cost the business, and when a business doesn't pay for that advice, they end up making errors that cost them significantly more than if they had paid up front to address the problem.

Unfortunately, it's human nature to take shortcuts.

So, as you are working hard every day to build your company, or as you're building your career, make sure that you play the game smart. You can't save money by cutting corners. Spend your money wisely or it will escape out the back door. Get the most value from your decisions. You enhance your stature by paying people to be on your side.

About Joel G. Block

Well known in the business community, Joel Block is a best selling author, speaker, and business strategist. Frequently a principal in his transactions, Joel has raised tens of millions of equity dollars for his ventures, which have included real estate syndications and privately held businesses.

Joel’s career is highlighted by the launch of a financial publishing company which he grew nationwide and later sold to the Los Angeles Times. More recently, Joel works with scientists, engineers, technologists and others to help them optimize their entrepreneurial opportunities. Would you like to get a private phone consultation with Joel? Visit www.joelblock.com/capital for details.

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