Starting up a new business is rarely an easy endeavor, and keeping it growing and thriving for years to come will always require work and attention. Industries change and consumer spending habits can shift from year to year. How a business manages its finances to adapt to these changes is often a determining factor in its survival.
The best way to ensure that entrepreneurs don't steer their new business ventures off a cliff is by planning ahead to avoid potential money mistakes. Hidden overspending pitfalls could be one of the more dangerous issues small businesses face.
There are some small business mistakes that are pretty common. Everyone knows that launching a business without a budget or failing to keep personal and business expenses separate spells trouble.
How about those less obvious and sneakier money mistakes, though? The business world can be a dangerous jungle where financial pitfalls and overspending traps lurk around every corner. For this article, we'll look at some of the less obvious financial mistakes that might harm your business and how to best avoid them.
1. Poor or, even worse, no marketing
It goes without saying that marketing for a small business is an essential component. There are thousands of ways a small business can go about marketing its goods and services, and executing these methods without careful thought is like playing with fire. Getting burned is a given.
A football team wouldn't enter the Super Bowl without a game plan, and no business should launch without a marketing plan. Choosing to wing it will only cost your business money without much of a return on your investment. To devise and launch a successful marketing plan, it's important to understand what separates your business from the competition, who its customer base is, and how to best get the message to them.
Some businesses may see better results with traditional forms of marketing, such as newspaper or TV ads, while others may want to consider marketing themselves at trade shows and conventions of related industries. The marketing possibilities are virtually limitless.
Start by writing a unique selling proposition (USP) that you can refer to throughout the planning stages of your marketing. Pay attention to what the competition is doing wrong and doing right, and apply the relevant aspects to your marketing strategy.
It's also vital for your marketing strategy to match the size of your business. Launching an elaborate marketing plan that's better suited for a business with a decade of success will likely be more costly than effective. Your marketing strategy should evolve and change as your business grows.
2. Choosing the wrong office space
You don't necessarily need to be a money-saving expert to know that a 15,000-square-foot warehouse probably isn't the best option for a three-person travel app startup. Setting up shop in a beautiful loft in a hip ZIP code might appeal to your brand's ego, but that's very possibly the only benefit.
Unless you happen to be a steakhouse catering to investment bankers, most new businesses simply don't need a prime location or luxury office space. While some businesses may find themselves in more image-conscious fields than others, working conservatively when it comes to office space (in the beginning) can go a long way to save you money.
Take the time to examine your business's needs and requirements, and look for viable locations that won't drain over 20% of your monthly expenses. You may find that utilizing a coworking space or operating out of a home office is enough to get the job done. It's going to cost a new business less money in the long run if it outgrows its location, rather than struggling to grow into an oversized location.
3. Hiring too much staff, too quickly
Spreading yourself thin and trying to juggle every duty and role of your business can be an exercise in exhaustion. While the option of hiring somebody to handle every duty and function in-house might seem like the obvious solution, that too can be a money mistake. Aside from payroll, you have to train and manage all those employees, and frankly, some of them you might not need.
Outsourcing certain job duties or using contractors can be an incredibly streamlined approach for small businesses, especially in the beginning. Virtual assistants can be hired by the task or by the hour, not only freeing up some time for entrepreneurs but offsetting the cost of hiring a full-time secretary.
Another option to consider is looking at independent contractors for those more specialized services. With the advent of the internet, a small business can find freelance contractors for everything from graphic design and writing services to tech and manual labor tasks.
Far too often, a small business might overspend on the payroll for jobs that don't necessarily require an in-house employee. Yes, your business may need a social media manager, director of marketing and handyman, but it may not need a person to fill those roles on a full-time basis in the beginning.
4. Subscribing to too many services
Ah, the recurring bill. These can quickly begin to feel like leeches on your business if you don't use the services on a regular basis or get the most out of them. Business subscription services can vary widely, from accounting software like QuickBooks to messaging services such as Slack. [Read our review of QuickBooks for more information.]
Yes, these services are often valuable, and many are quite affordable. However, just like consumers with too many streaming services, your business probably doesn't need every subscription service that promises to "remove the headache associated with …" Too many underused subscription services can really add up and become a profit-killer for a small business.
The best way to prevent this is to do a monthly audit of how much your business actually used any given subscription service and weigh it against the cost. Cutting out what your business doesn't use will free up funds for areas of necessity.
5. Getting caught in the latest technology trap
Some industries (blacksmithing, for example) just don't have a lot of developments in technology. Others, of course, see technological advancements on an almost weekly basis. Technology can help a business rapidly increase its productivity and often cut down on costs. However, that's not always the case.
Your business shouldn't skimp on the technology it needs to perform to the best of its capabilities, but you should carefully examine the budget before incorporating any new technology. New technologies often come with a lot of kinks that take time to iron out. More often than not, your business won't require the latest and greatest tech the day it hits the market.
It's better to monitor emerging technologies with a watchful eye and incorporate them after careful consideration when the benefits match the cost. Looking out for technology traps applies to older technologies as well: Does your business still need to be spending money on printer cartridges, or can all documents be managed as PDF files?
Every dollar counts for small business owners. If those dollars aren't utilized in the most effective and efficient way possible, well, the writing is on the wall. Seemingly small decisions can have a major impact on a business and, if not corrected, set a company on a course for disaster.
By staying mindful of the financial mistakes listed above, small business owners can have greater peace of mind when it comes to their bottom lines.