What are mustachian rules of thumb for small business owners and spending?

[Fuzz]

Hi Mustachian small business owners,

I'm curious if anyone feels like they have a split personality when it comes to spending on themselves and spending on their business?

I recently opened a solo law firm. I've got insurance costs, cell phone, web site costs, office space, etc. I compared notes with a much more established solo practitioner and found that my monthly overhead costs are about a tenth of his!

One of my goals is to keep my overhead as low as possible (duh, right?). Yet my profession is not known for its business sense. Many of my competitors spend a lot to impress clients, or just because they're busy (i.e. they go with the local telephone service provider and get ripped off on their multi-line set up, instead of figuring out a much cheaper VOIP system).

Yet in a client-facing business, higher overhead often equals the perception of higher quality. Similarly, charging more for your services signals quality. So being anti-mustachian is a defensible marketing strategy: if you can spend a ton on your office space, and charge your clients a ton, the you must be a good attorney, right?

Obviously, I don't agree with that position. But if spending more makes you more efficient or gets you more clients, then I see the value. MMM has those 5 nail guns.

In my personal life, I tend to err on the mustachian side of spending a lot of time to figure out the cheapest/most efficient way to do things. I'd like some of those hours back I spent researching the best/cheapest audio set up, for example.

In my business life, I do less of that. I'm still figuring the balance out. For example, I'm paying for a professional website. First, I spent a lot of time screwing around in wordpress and looking at elance. I built a serviceable website but I have little design sense, so it looked like crap and I wasn't sure what to put on it.  Ultimately, I decided to spend more for a professional developer. Once I made that decision, I decided that a $250 website from elance wasn't good enough, so I found a Western developer that does good work and am spending $2000 for something with good design and some careful thinking on how the content fits my branding. If it gets me one or two extra clients, I'll make the money back. I think it's going to get me like 10 extra clients this year.

How do other mustachians evaluate the same dilemma?

More broadly, how do mustachians evaluate uncertain and *unnecessary* investments in a small business?  When I say unnecessary I mean things like the marketing budget; a larger monitor (I want a 27 inch one because it would make doc editing much easier; but I could get by with a 24 inch monitor; currently I don't have one, so right now I get by with none); a new laptop (mine is a 2008 and I'm using it much more intensely so it's starting to slow down...and those new mac air laptops look pretty slick...).

My business makes money. It can *afford* those things. But every dollar I spend on the business is roughly 70 cents of after tax income, or a nice contribution to a SEP-IRA. I have some savings, but not much. Right now, it makes a much more sense for me to focus on increasing my income, while keeping my expenses low. 

I'm trying to think of good rules of thumb to evaluate these uncertain investments.

Even if it makes me more efficient, it's hard to know whether a 27 inch monitor is worth it. Or how much a new laptop helps. Or how much the website helps. Or how much the marketing helps.

How do other mustachians deal with this?

My thoughts are a little jumbled, but if you've been in this place, I'm sure you've thought about it. Thanks.





















 

[sparklebunny]

I'm a solo attorney and I've had my firm for almost six years. My two paralegals joke that I'm cheap, and well I am on some things. Certain areas if marketing included, but not all.

 I'm on my ipad and I'm too lazy to one finger type all the stuff that worked and didn't so I'll try to do that tomorrow. But feel free to shoot me a message. I'm happy to help you not reinvent the wheel here.

[arebelspy]

Yet in a client-facing business, higher overhead often equals the perception of higher quality.

Many times they won't know, so you don't have to worry about how it affects perception.

Definitely cut expenses on things that no one will know or care about (your VoIP example was a good one for this).

So you can charge more and still save on overhead.

[sparklebunny]

Higher overhead does NOT equal perception of higher quality in all instances.

You can have a nice client experience without a lot of overhead.  I do that.  My class B/C office rent is about $9 sf, with class A being $24 sf in my area.  I have a nice homey atmosphere, easy for clients to find and not so sparkly and shiny that they think their fees are just going to my overhead.  So it definitely can be done.  I've gotten a lot of compliments on my office space.

I practice estate planning and elder law, so my practice involves lots of client interaction and I need a nice (not expensive, but nicely put together) office.  Your practice being family law and criminal doesn't require a super nice space.  You need practical, but still nicely furnished (not expensive, just not looking like a garage sale exploded in your office).  Go for low overhead, share office space if you can or use an executive suite.  Don't do what a former boss of mine did (family law atty) and buy a $10,000 couch.  That's ridiculous and clients don't care.  My couch in my waiting room came from JCPenney and cost about $300.  Looks great.

I got your message and I'll shoot you an email later today.

[feelingroovy]

I am self employed and have 3 pt employees.

My biggest rule of thumb is if it will save time (particularly YOURS), it's often worth it, but do the math.  I've had to remind myself to upgrade software at a cost of $50/month once I realized it will save my employee an hour/week at $23/hour.

A slow laptop is worth replacing, IMO.

It's a little bit of trial and error--you won't really know how much time you'll save with something until you try it.  And sometimes things that seem expensive now become absolutely necessary once your business grows.  But again, you may not know until you're there.  :)

[Weedy Acres]

I own a small (but growing) manufacturing business with a dozen employees.  When we started out, we had no revenue (fewer employees as well!), so bought the lowest cost options possible.  We rented a leaky, raccoon-infested, inefficiently laid-out building for $1/sf/yr (1/3 the market rate for better space); we bought tools from Harbor Freight and equipment off CL and ebay; we got some office furniture at an auction and a used copier from a guy that repairs them out of his garage.  I'm tight on hiring and overtime and questioned my Office Manager for paying 5 cents a stamp extra for little designs.  I slept on a couch in my office for 3 years (home was 100 miles away) instead of renting a $600/mo apartment.

As our income grew, I set aside a fixed amount for every unit we ship that goes into a tool budget, and let the production employees spend it on whatever they want.  Over time they've replaced HF tools with nice Milwaukee cordless ones and bought things that help their productivity.  Our lease is coming up and we're looking at building something new (nothing in the area is available and suitable) that will be much more efficient. 

I think you always seek to optimize every purchase, just as you do in your personal life.  For me it also included holding off on spending until I had the cash flow to support it.  I don't want to be like one of those stupid dot coms that went out and spent thousands to buy really cool furniture with investors' money and then folded.  And even when you've got the cash flow, if there's nothing wrong with the used copier, there's no reason to buy a different one unless it's impeding your efficiency. 

As for the "appearance" stuff, it's a balance.  I talked to a guy who owns a larger manufacturer and just built a new building and he said it had a surprising impact on peoples' opinion of his company.  So even though we've got a different client niche than an attorney, we do get customer visits, and appearances matter.

But I think it's possible to get the nice appearance frugally.  You can get great, matching office furniture for cheap at auctions.  Be creative with your trappings. 

[the fixer]

I'd just like to say in general that I don't see much difference between personal and business perspectives. Be frugal so don't waste money on stuff that doesn't matter. Also don't be cheap, refusing to spend on what does matter. Measure the return you'll get and decide if the investment is worthwhile.

I'm reminded of MMM's rentals where he spruces them up to attract long-term, well-paying tenants. A slumlord would just rent them out as-is but wouldn't get nearly as much profit, plus would have to work harder at keeping the place in livable condition and managing vacancies. Either that, or they'll have to dump the property after a few years and buy fresh ones like trading in cars every few years, running up transaction costs. It's about understanding the business and what the customer really cares about.