Expanded Application of the "Penny Rule" Can Yield Big Benefits for Businesses

BY: Stanley D. Koopmans

"Watch your pennies, and your dollars will watch themselves." It's one of the first rules of finance that we learn as children. And while it may sound trite, it contains plenty of truth and wisdom.

I can recall first hearing the "Penny Rule" as a kid, and thinking it'd be a good idea to test it out with my paper-route earnings. A short time later, I saw firsthand how greatly it lesson could be expanded during a conversation with my dad.

Driving home from a farm auction we attended, I asked, “Why did that farmer need five hacksaws?” He replied that the farmer didn’t need that many hacksaws, but that he didn’t keep track or take care of his tools. So when he needed to use a tool – like a hacksaw – he would just out and buy another. In other words, he wasn't watching his business. Ultimately, as a result of his squandering money over the years, he had to sell his operation in a farm auction because he'd taken on too much debt.

I don’t remember what my dad bought at the auction that day. What I do remember is the realization that the Penny Rule had applications to the business world, as well.

As a long-term commercial lender, I've had the privilege of seeing a number of great managers and business owners watch their pennies when leading their businesses. For example, I had an existing customer that needed several expensive specialty tools on job sites scattered throughout the Midwest. Every tool had its assigned place on peg boards at the main office and had to be signed out. As a result, tool costs were controlled, and time and money weren’t wasted looking for existing tools or purchasing duplicates.

Another way to watch pennies add up is by monitoring energy costs. Money and energy saving considerations can include:

  • Solar panels
  • Timers that turn heat down during the night and back up again early in the morning
  • Fuel-efficient vehicles
  • Heat tape
  • Door closers
  • Occupancy sensors that shut off lights in rooms that are not being used

Can frugality be carried too far? Sure – as is the case with everything, balance is essential. If taken to the extreme, penny-pinching can be considered obsessive (even downright bizarre), earning ridicule from observers and participants.

Two examples from my days as a bank examiner spring to mind. In the first, a former co-worker would stop his car along the road to pick up every aluminum can he saw, to cash in on the 5-cent rebate. The second happened when I was reviewing the official minutes of a bank’s board of director meetings. Only every other page made sense, because the minutes were kept on the backside of “used” paper. This was also the type of paper they loaded into the copy machine.

So I encourage you to think of ways to mind your pennies (and then tens, hundreds, and thousands of dollars), but with proper moderation! And if you'd like to discuss ways to put that saved money to good use, please don't hesitate to send me an email or give me a call at (608) 576-7860

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