How Do You Manage Your Costs Early On?

“Are you personally signing every check?” Bill asked me at dinner. I had worked for Bill years ago. Bill was seriously old school in his approach.

“Yes, I am,” I replied.

“That’s good,” he said. “That’s an important tool for you to keep control of the spending.”

Bill was right. Signing every check was important. Because controlling the money is critical.

It’s amazing how quickly things can get out of control if you are not careful. Here are a couple other tips to keep your spending under control:

A. No company credit cards for any employee.

“Senior management should have company credit cards,” Randy (not his real name) said to me during one of our early staff meetings. “That will relieve some burden from you.”

I said, “That’s okay. I want the burden.”

And you want the burden too. Credit cards give people the ability to spend without approval.

Eventually you can loosen the grip on spending, but not now. Remember, you want to sign every check.

B. No minimum spending approval.

Randy’s next play was a minimum spending allowance. “We should be able to approve spending up to $1,000,” Randy said at the next staff meeting.

It seems like a reasonable request, doesn’t it? $1,000 isn’t a lot of money, and these are your senior management team.

Shouldn’t they be allowed to spend $1,000 as they see fit?

Again, I said, “No.” I wanted to sign every check.

So, it wasn’t a big surprise when Randy pushed for a $300,000 ERP manufacturing system that we didn’t need. We could run manufacturing with an Excel spreadsheet and Quickbooks.

Randy was so adamant about using the ERP system that he threatened quit if we went with Excel and Quickbooks.

We went with the combination of Excel and Quickbooks. And Randy? He was gone from the company one month later.

You’re trying to build a culture of being appropriately frugal.

The reality is your team is going to be spending big money to grow the business; much bigger money than they can put on a credit card. But focusing on frugality on the small things sets a culture of frugality for everything else.

In our case we were spending up to $200,000 for every time we released a mask set. And we were spending big money on software tools for our design engineers.

So there was a lot at stake each time we pressed the button releasing a product.

Jeroen, who was our VP of Engineering, had a very detailed release check list that designers needed to adhere to before we released a mask set. He never cut corners and never released a product until every step of his check list was met.

That’s where the discipline you set on being frugal with the small things pays off. You get everyone on your team being appropriately frugal all the time.

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For more, read: Are You Being Appropriately Frugal And Why It's So Important?

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