money-clipart-aTepRo6T4Being cheap and skimping on equipment can be potentially harmful to any brewery or business. Neglecting needs like software won’t necessarily be detrimental to your brewery, but you’ll definitely be lacking efficiency compared to breweries that have invested in measures to streamline processes.

In my previous partnership in a wholesale and distribution company,  we reserved a booth at a large trade show in Las Vegas.  My partner decided to drive a 20 ft trailer filled with all the trade show displays from Portland to Las Vegas. After arriving, my partner noticed that most of the attendees had paid companies to ship their trade show pallets. Rookie mistake…  According to the trade show brochure, pre-arranged shipping was the recommended method.  Although my partner was aware of this option, he wanted to save costs and do it himself.  Shipping the displays seemed expensive, but after taking into account the time, fuel, and the RV rental, the cost was actually much less.  While we packed things back into the trailer at the end of the trade show, he looked at me and said: “Every time I’ve tried to be cheap, it has ended up costing me more.”

As an owner of a business, you know that a penny saved is a penny earned.  In many businesses you must be able to save money just to survive.  However, sometimes we tend to forget the indirect costs associated with trying to save money. Owners tend to forget indirect costs such as time, delivery costs, opportunity costs, and the cost of failure.

If you’re not involved in a sole proprietorship, but rather a partnership, you need to be aware of the time you are “billing” your partnership.  For example, one of my partners managed a restaurant location and was intently focused on saving the business money.  With all good intentions, he shopped at multiple wholesalers to get the best deals.  He would buy cooking oil from Costco because it was $4 a gallon cheaper but drive to Cash & Carry to buy paper plates because it was $2 a case cheaper.  After some quick math I found that he had saved a grand total of $12 compared to just having it delivered. Sounds like some good savings, right? If we didn’t account for the indirect costs associated with this savings, I would’ve said that the $12 he saved the business made him a cost conscious manager.  But what were the indirect costs?  Back then my partner billed the partnership at $15 per hour.  It took roughly one hour to go shopping for the groceries plus fuel expenses.  So the perceived “savings” actually cost us $3, not to mention the potential back problems caused by carrying heavy supplies 3 days a week. It’s a micro-level example but you get the idea.  Once again, “Every time I’ve tried to be cheap, it has ended up costing me more.”

As a sole proprietor your time may be a sunk cost.  Thus, if you spend time after hours running errands, then maybe you are truly saving money.  However, you must still consider what you are sacrificing in order to spend that time saving money.  In some cases you are paying another employee to fill in for you while you spend time saving money.  In this case you would have to take into consideration the amount of money you are paying that employee to fill in for you while you are out “saving money.”

In some cases you need to take into consideration how much you are spending on delivery costs of actually getting the product delivered or implemented.  In other cases you need to take into account opportunity costs of how you could have been spending your time to ensure more profitability.  What if the project is a failure?  What if you overload your trailer and cause extensive damage or your trailer breaks down along the way?  What if the wholesalers are closed by the time you arrive?  What if you choose the wrong business software (or none at all) and end up wasting $15,000, 3 months of your time and the opportunity cost of doing more business?

Lastly, during a stint in the wholesale & distribution industry, I had merged my import & export company with a client’s wholesale & distribution company.  My new partner had already invested in Quickbooks as his primary business software.  Quickbooks was definitely the cheaper solution but lacked most of the needs that we would need.  However, we got very creative and bought multiple Quickbooks POS licenses and upgraded them to PRO/Multi-Store editions in order to get the system to the level we needed to manage that particular type of business.  From my partner’s prospective, this initially seemed like a $1,000 business software investment.  It ended up costing at least $5,000 in software and at least $10,000 to implement it.  Ultimately, we had a failed system that didn’t do half of what we needed. My partner didn’t want to eat his cost and consider a more suitable ERP system like SAP Business One because he had already invested $1,000.  If we would have gone with a more robust system from the beginning, we would have probably spent a little bit more, but  would have a system that actually worked. Don’t forget about the 3 months we wasted (indirect costs we’ll never recoup) trying to get the “cheaper” solution to work.

Crunch some numbers and conduct research to make sure it’s really going to be a sustainable business decision for the long run before you consider sticking with spreadsheets, cheap software and investing in knock-off equipment. Chances are you’ll probably wish you did it right from the beginning.

Remember: “Every time I’ve tried to be cheap, it has ended up costing me more.”