Rather than employing the philosophy of "a penny saved is a penny earned," would be wise to subscribe to the practice of "a penny well spent is a penny earned." As you approach the question of how to spend money well in a personal service business entity, there are two basic types of spending that you need to understand: expenses and investments. Both require an outlay of money, but one generates an economic return while the other does not.
Expenses and Investments
Expenses are costs that generally do not have a direct effect on generating revenue, though they may offer indirect value and are vital to your business in that respect. Expense items include communications costs, accounting, legal and other professional services, and office supplies.
Investments, on the other hand, are those expenditures that directly affect revenues. Investments include the cost of sales trips to close deals, sample products or services that you distribute to clients, and direct marketing or advertising costs.
It is often difficult to determine whether an expense is an investment, but what is important is that you understand that both expenses and investments serve a valid function and need to be monitored separately. As a general rule, expenses should be kept to a minimum and consistent with the support required, while investments should be gauged according to the likelihood of a return within a reasonable period of time, usually one year. For instance, if a direct-mail campaign does not show measurable results in a year, you should reexamine it for effectiveness.
Every portable executive makes capital investments, and it is appropriate to view the return on these investments over a three-to-five-year period of time. Capital investments include computers, office furniture, a fax machine, etc., and the key to balancing these types of expenditures lies in measuring the returns that each generates.
Elements of Cost Control
The smartest thing that any portable executive can do is to work out a cost-control strategy that includes the basic expense and investment expenditures incurred on a daily basis. Many things can be done inexpensively without sacrificing effectiveness or quality. You don't need to do everything first-class, however it may make sense to spend more on activities that have a direct impact on developing new business. For instance, you can choose to take the subway or bus rather than a cab to meet a client for lunch, and then spend a little more in going to a nice restaurant.
Develop an Expense Budget
Every portable executive, regardless of the type of employment vehicle chosen, should develop an expense budget and try to live by it. The budget should be broken down into expense and investment categories so that you can consider each expenditure in light of the return realized. It is also important to track your fixed and variable costs. Fixed costs are those you pay whether you are earning income or not, while variable costs are those that depend on income, such as the cost of extra administrative support during an extraordinarily busy business period.
Outsourcing
Not only does outsourcing allow you to make the best possible use of your time, it can also be far more cost-effective to out-source certain activities to others. You should be on the lookout for services that can be obtained through bartering with individuals who also need your skills in their businesses. For example, a portable executive in marketing might barter the development of promotional materials for an accountant in exchange for accounting services. With many more contract workers and portable executives in the market place, this has become much easier to do.
The Effect of Time on Cost
One should be aware of the ways that time and cost relate, and make appropriate decisions about when extra costs are justified. For example, most companies charge a premium for expedited services, so a decision must be made as to when such premiums are appropriate. It is much more costly to send a letter overnight than by two-day guaranteed mail through the post office. Part of plan for cost-control should therefore include the development of criteria for incurring these extra expenses.
