By Matt Andersen, CPA, Founder, MD Andersen CPA PA
To form a profitable business, every entrepreneur must weigh expenses against their current and anticipated revenue. It follows logically that if you limit what you spend, you will earn more profit and have more money in your pocket.
Lifestyle Entrepreneurs generally prefer to “run lean” and spend less to earn high-profit margins relative to the time and money spent delivering their product or service. However, not every Lifestyle Entrepreneur understands what it means to run lean.
Running lean is not all about withholding cash at every opportunity. You can run your business solo and keep every dime, but it will likely keep you working like a dog and not provide any opportunity for future growth. It is also not entirely about spending money only on items you believe have a high return on investment like experienced employees or expensive new technology. If you want to be a Lifestyle Entrepreneur who runs a lean business, you need to limit your spending and understand why and when it is time to outlay cash.
To determine the answers to both of these questions, here are some rules to follow to maintain a lean business positioned for growth.
Do Not Spend Money Before You Know Your Product Will Sell
In our previously published Lifestyle Entrepreneur Guidebook, we focus a lot of time and effort talking about the importance of experimentation. If you think you have a great idea….great! But do other people feel the same? Are you ready to put yourself out there, let people try out your product or service, and give you feedback?
One of the first things many new entrepreneurs will do when they come up with a new business idea is rush to create the perfect “pitch” to their target market. They spend time and effort in designing a logo and getting professional business cards. Others will go ahead and set up a website, create a perfect pitch deck, and have a box of professional brochures ready to go.
Rather than waste time and energy selecting the “perfect” colors, fonts, and cardstock, consider devoting this energy to what you are offering. Are you confident there is a strong demand for your product? Do you know how your product differs from the competition? Have you determined how you can improve your product? If you have already created something people genuinely want to buy, you don’t need bells and whistles to convince them about the value of what you offer. If you are just starting out, the product or service should have some ability to stand out on its own.
Rather than purchase expensive marketing materials to start, create a simple logo with just your name in a professional font on Microsoft Word or other word processing applications. If you need a pitch deck, download a template that you can easily edit and save online. If you absolutely must have a website, set up a free, one-page site with general information about what you do and create social media pages to give you a wider audience. Every entrepreneur needs to do marketing, but wait until you know you have a product that can drive growth.
Be True to Yourself and Where You Are
Some business owners may opt to spend more money on office space, equipment, and supplies because they feel it is more appropriate for their target market. Some professionals, for example, may feel pressure to give wealthy prospective clients the impression of financial success. While this expectation may exist to some extent, truth and authenticity will grow your business in the long term. People come to you first for your product or expertise, not for the wood paneling in your office.
Some of these efforts may be for your clients, and some may be to satisfy your own ego. Neither makes you a bad person. We can all admit, it feels good to project an image of success! No matter the motivation, remember where you are and the road you have ahead. Business ownership is not easy and you are, first and foremost, an entrepreneur who seeks profit. As a Lifestyle Entrepreneur, you also want to avoid fixed costs that can limit your freedom and flexibility. Before you rent space in the nicest part of town, ask yourself whether you can use the same money to connect to your customer base, differentiate your product, and make it more valuable.
Matt Andersen, CPA loves analyzing data, people, and businesses. He is passionate about helping entrepreneurial-minded clients achieve their goals, keep more money in their pockets, and live a higher quality of life. In addition to tax and accounting services, Matt provides one-on-one coaching for various topics including lifestyle entrepreneurship, advanced tax planning, and new business creation.