Dollars And Sense
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You're constantly faced with major spending decisions. You're in the market for a new computer or fax machine, or it's simply time to pay that exorbitant phone bill. Face it: The cost of doing business is becoming a major financial strain for many homebased entrepreneurs. But with a little planning and professional guidance, you can ease the tension on your purse strings and reduce expenses.
Saving money doesn't mean underpaying employees, however, or going without the necessary insurance, according to Dean and Jessica King, homebased entrepreneurs in Richmond, Virginia, and co-authors of Paper Clips to Printers: The Cost-Cutting Sourcebook for Your Home Office (Penguin). "The idea is not to be miserly or do everything yourself," explains Jessica. "The goal of cost-cutting is to make smart spending decisions, such as figuring out how to avoid buying more equipment or services than you really need or how to hire consultants at the right price."
To help you pare your expenses without sacrificing quality, here are some cost-effective strategies for everything from marketing your company to finding the right help for your business.
Carolyn M. Brown is a business and technology writer living in Plainsboro, New Jersey, and author of Nobody's Business But Your Own (Hyperion).
Take It To The Customer
At one time, purchasing ad space was the solution to every entrepreneur's marketing challenge. Then it was direct mail, followed by telemarketing. But with advertising and postage costs on the rise, these tactics have lost some of their appeal, says Fran Hanan, owner of Hanan Communications, a Chicago-based public relations and marketing firm.
With today's tough competition for customers' attention, you need to employ such take-it-to-the-customer techniques as attending trade shows and seminars. The best way to promote your business is to maximize referrals and conduct effective public relations campaigns. Here are five sure-fire, inexpensive marketing methods:
1. Be an expert. Don't overlook your most accessible source of promotion: yourself. Give speeches to industry groups, colleges and community organizations, or offer workshops at conferences and business expos. Provide sign-up sheets or marketing materials for potential customers. Also, be a reference for customers, clients, vendors and related businesses by circulating relevant information and providing contacts. After all, homebased businesses thrive on a steady stream of referrals from clients.
2. Create a press kit. Getting quoted in the media or having an article written about your business is a great and inexpensive way to target your market. "Watch for trends that you can tie your business into," says Hanan, a former editor at CBS' affiliate station in Chicago. Your press kit should include a profile of your company, biographies of its principals, product fact sheets and testimonials from customers. Make a list of trade magazines, local newspapers, and radio and TV stations to which you can send short releases on new products, deals, awards or special events.
3. Circulate newsletters. "Newsletters are a great way to showcase your company's expertise and keep your name in front of prospective clients on a regular basis," says Hanan. "They show that you are not just a salesperson--you are an expert with important information to offer." Develop a mailing list of clients and send copies of your newsletter quarterly.
4. Network. You'll save money by selling through trade or professional groups. "People do business with people they know and like," Hanan says. Swamped with running the daily operations of your business, you may feel you have little time to give. But you'll learn about sales leads by joining groups of like-minded individuals. Also, serve on the boards of community organizations, and host house parties tied to your business--you can hire students from cooking or catering schools or work out an arrangement with a local restaurant to keep costs down.
5. Form alliances. There are several ways you can band together with complementary enterprises to reduce costs and increase business opportunities. Some involve complex legal paperwork, such as a joint venture or a strategic alliance. Others are less formal partnerships, such as a virtual corporation, where you assemble a group for a specific project or client. For instance, as a contractor, you might partner with two other companies to win a bid. Another type of alliance is a consortium, where a group of companies with different specialties share their services; for example, a consulting firm teaming with a graphic artist and a photographer to create brochures and other marketing materials.
Trade shows are great places to secure leads--and they're a lot cheaper to utilize than most ad campaigns. Just ask Cynthia Brower, owner of Atlantic Optical Framewear, an Owings Mills, Maryland, company that imports and exports ethnic eyewear from Africa, Asia, Europe and South America.
"You may spend $1,000 to $3,000 per trade show to do a table-top display or booth. But you get to physically preview your products and services, and you can observe firsthand how potential customers respond to certain product features," says Brower, 48. "I get to do some surveying and demographics. I find out about new distributors, and I get publicity--all of which, on its own, could end up costing me as much as $6,000."
Operating out of a spare bedroom in her home, Brower has been able to maintain her costs, which range from $75 to $125 per pair of glasses, by buying directly from manufacturers and by establishing her own wholesalers and distributors.
Supplies And Demand
While ordering some supplies in great quantities saves tons of money, your monthly consumption of certain products may not warrant buying in bulk. "Your best bet is to buy supplies through mail order," says Jessica King. "Mail order offers better prices even for the smallest of purchases, and you can get bulk discounts should you need them." Better still, mail order companies usually ship within two or three days--even overnight.
When buying larger office equipment and electronics, consider walk-in superstores, such as Office-Max, Office Depot and Staples, which often offer discounts of as much as 60 percent off list prices. "It's important to do the research to know if you are getting a good deal," says King. "The staff generally isn't that knowledgeable. Read reviews in such publications as Consumer Reports." If cash flow is tight, consider leasing equipment. If you need to replace expensive equipment on a regular basis, leasing is cheaper in the long run than paying for an item outright.
King offers some cost-saving telephone tips: Fax when it's cheaper than making calls, use a calling card when traveling, and take advantage of cheaper rates by calling other time zones before 8 a.m. if you're on the West Coast and after 5 p.m. if you're on the East Coast.
Also ask your local utility company about discount programs. Several organizations, such as the National Association for the Self-Employed, the American Home Business Association and the Home Office Association of America, offer members long-distance savings plans and discounts on other business products and services.
If you're constantly sending letters and packages, mail is a major business expense. Be sure to set up an account with your postal service of choice--you may be eligible for discounts if you're regarded as a regular customer. Compare standard prices for Federal Express, UPS, Airborne Express, the United States Postal Service (USPS) and DHL Worldwide Express. Obviously, the faster you want an item sent, the more you'll pay. Sending items via second- or third-day delivery cuts your bill in half.
"For weekend or holiday delivery, use USPS' Express Mail [or Saturday Only delivery for Priority Mail] since there's no extra charge," King says. "Next-day delivery is guaranteed to major cities with Express Mail."
The development of small electronic postage meters can revolutionize the way you handle mail. These gadgets attach to PCs and allow you to address and postmark documents via the Internet using a credit card for payment. They also tell you the correct class and postage rate to use. Four companies that sell postage-meter software are: Ascom Hasler (800-243-6275), Francotyp-Postalia (800-341-6052), Neopost (800-624-7892) and Pitney Bowes Inc. (800-322-8000).
To Upgrade Or Not To Upgrade
One of the biggest technology decisions you're bound to make is whether to upgrade your computer system or buy a new one. The rule of thumb: If an upgrade can give you the features you want for no more than 25 percent of the cost of a new system, then that's probably the way to go. "A good window of time to consider is three to five years down the road," says King. "You can't look at a computer as something you are going to keep for 10 years."
If you're in the market for a new computer and software, consider mail order vendors such as Dell Computer, Gateway 2000, Egghead Computer and Mac Warehouse, which often provide savings of up to 20 percent off the prices at superstores. Check out the catalogs or call the companies' toll-free phone numbers to compare prices. You may even find a wider range of options than those available at retail stores.
If you don't need the most powerful, up-to-date computer equipment, buy last year's model, advises King. "Whenever they introduce the latest models," she says, "companies tend to heavily discount previous ones."
The Internet also offers a variety of discount alternatives. "Always shop at more than one place," says Todd Porter, vice president and co-founder of Power Inc. in Seattle. "Ask questions. A Web site should explain what the company is and the details of its return policy. [Be leery] of sites that offer every sales gimmick imaginable but don't offer any advice or help. Our site (http://www.powerinc.com) has a `tips and tricks' section that talks about everything from how to maintain your battery to how to negotiate with your cellular carrier."
Power Inc. sells cellular phones and wireless accessories at discounted prices. A 10-year veteran in the telecommunications industry, Porter, 33, launched the company in 1994, after witnessing customers' difficulty in finding accessories for cellular phones.
"I was in an electronics store and there were people standing in line to buy batteries for $99 or more," Porter says. "I felt I could give people a break by selling the same items for less money and offering a wider variety and hassle-free service on the Internet." Porter built and maintained his Web site from home. Sales increased 720 percent from 1995 to 1996 and exceeded $1 million last year.
Don't ignore the Internet as a way to inform people about your company, but don't put all your eggs in this basket, either, experts warn. You can also post information about your company on electronic bulletin boards.
A Little Help From SoHo Friends
Besides providing networking opportunities, trade and professional associations are invaluable sources of information and advice on running your business--usually at a cost of less than $50 for an annual membership. Moreover, members receive special benefits and discounts that help them cut costs, sometimes by as much as 50 percent. Available at most libraries, the Encyclopedia of Associations (Gale Research, http://www.gale.com) lists more than 23,000 national and international organizations.
In fact, the public library can be your best friend for research and reference materials. For instance, you can find competitive information in the Dun & Bradstreet Regional Business Directory (Dun & Bradstreet) and the Thomas' Register of Corporations (Thomas Publishing, http://www.thomasregister.com). The Thomas' Register of American Manufacturers (Thomas Publishing) lets you know who and how many people are selling in your market. You can find the names of vendors and suppliers in the Directory of Manufacturers' Sales Agencies (Manufacturers' Agents National Association, http://www.manaonline.org).
There's also the American Wholesaler and Distributors Directory (Gale Research). Gallup Poll Monthly (The Gallup Organization, http://www.gallup.com/poll) can tell you of surveys and polls conducted by The Gallup Organization on specific subjects. You can photocopy various business, accounting and legal forms using Business Forms on File (Facts on File).
Don't overlook local colleges and universities as sources of possible free help. Students may be seeking internships for a semester or two in exchange for course credit. Or you can hire and pay students on a part-time basis. The advantage is not only their eagerness to work, but their access to several rich resources--including university libraries and high-tech computer rooms.
In addition, the SBA offers various programs to assist homebased businesspeople. Call the SBA Answer Desk at (800) 827-5722 for more information. The SBA also sponsors the Service Corps of Retired Executives (SCORE), a national network of volunteer, retired executives who provide counseling, workshops and seminars free of charge to existing and start-up business owners.
No Place Like Home
Who says all successful entrepreneurs eventually make the move from a home office to commercial space? Joseph and Dottie Zoller did just the opposite: After 16 years of working out of a commercial office building, the Zollers relocated their consulting firm into their Highland Park, Illinois, house.
"We're saving $12,000 a year on rent," says Joe, a former executive vice president of an advertising firm. "We saved another $300 a year by [cancelling our] small-business owners insurance policy and instead attaching a rider to our homeowners policy, which covers property, liability and equipment."
The Zoller Organization, which provides marketing and advertising services to small businesses, projects sales of $400,000 this year. The Zollers have converted two spare rooms into offices, equipped with two computers, a laser printer, a scanner, a copier and a fax machine. "We can transfer data to our clients directly from our computers," says Zoller. "I recently completed a trade show display for a client overseas. We communicated mostly by fax, e-mail and FedEx."
In addition to $15,000 in annual savings, the Zollers no longer pay $30 each month to fuel two cars to travel to work. They also slashed their electric bill from $55 per month to $20. The one area they haven't managed to save money in is their telephone bill--they have the same business package and features they used in their commercial office.
The Zollers rarely have to sacrifice convenience for cost. They buy a lot of supplies through mail order or at superstores such as Office Max or Office Depot, which are less than a mile from home. "I order copy paper and laser-printer paper by the case. It's at my door the next day, via UPS," Joe says.
According to Joe, the couple's cost-effective moves wouldn't have been possible when they first started their business. "Advancement in technology is the main reason we can afford to work out of our home," he says. "Before, I had to be in an office center to run my business. But now equipment is no longer cumbersome--items are available that don't take up a lot of space."
Help Is At Hand
These groups offer support services for homebased businesses:
National Association of Home Based Businesses
10451 Mill Run Cir., #400
Owings Mills, MD 21117
Home Office Association of America
909 Third Ave., #990
New York, NY 10022
National Association for the Self-Employed
2121 Precinct Line Rd.
Hurst, TX 76054
Service Corps of Retired Executives
409 Third St. S.W., 4th Fl.
Washington, DC 20416
Atlantic Optical Framewear, (410) 654-4469, http://www.ameribiz.com/atlantic.htm
Hanan Communications, (773) 868-4049, fax: (773) 868-4551
Power Inc., (800) 866-6265
The Zoller Organization, (847) 831-4788, firstname.lastname@example.org