Starting a new business is no piece of cake. No matter what kind of business you are running. “The primary cause of nine out of ten startup failures (38%) is that they ran out of money or were unable to secure additional funding”, according to CBInsights.
If something in your current business model is not working, you will need to make an immediate change, to optimize your business and minimize your overall costs. This doesn’t necessarily indicate that you have to start outsourcing, lay off employees, or make other major changes—sometimes, little improvements can have a tremendous impact on the problem.
One area you must have a close look at is your business expenses. Investing is essential to growing your company. Even though you will want to use all available resources to achieve the finest results possible, there can be some situations in which they would be better used elsewhere. Here are eight common business expenses that entrepreneurs and startups ignore, along with ideas for cutting beginning costs to make better use of your capital.
1. Hiring a Marketing Agency
Even though your firm is still in its infancy stage, you want it to look amazing, differentiate itself from the competition, and have the air of an established player. That seems to make sense; however, there are three issues with it:
Both you and your clients are still unaware of what your business is.
- You and your customers don’t know what your company is yet.
- Who you serve and how will change within the first few years.
- Your #1 priority as a startup is finding product-market fit.
It is a waste of money to pay an agency $10,000, $20,000, or $30,000 to develop your brand identity and messaging. Within two years, you will have to start over, even if they do admirably. Rather, have your clients describe the value you provide, then utilize their words to inform your messaging. Hire a young designer or use a platform like UpWork to develop your brand guidelines and logo. All of this is possible for less than $1,000.
2. Wrong Accounting
Being on top of your money is essential to creating a long-lasting business. The idea of venture capital now makes it simple to expand a company that might not exist in five or ten years—many businesses fail and cannot sustain themselves without financial infusions.
To ensure that your firm is operating sustainably and effectively, it is vital to hire a competent accountant or CFO early on. Tools for accounting software might also help you manage your finances more easily. For more inspiration, see our ranking of the top 12 software tools for financial managers.
3. Luxurious Workspace
We understand this fact: everything feels more legitimate when there is an office. However, most of the time, it is not required.
You can truly do business from the comfort of your home and save a ton of money because almost everything is now available online. Many of our e-commerce clients operate their businesses in this way, and their success is evident! Technology has advanced to the point where you can have a remote workforce even if you have staff.
Are there any sectors left where owning an office is still required? Indeed. However, many business owners discovered that they could adjust to a virtual business model following the COVID-19 shutdowns.
Are there still industries in which having an office space is necessary? Absolutely. After the COVID-19 shutdowns, many business owners discovered that they could transition to a virtual business model.
4. Over Hiring
Many startups hire too many people because of their quick growth. However, recruiting too many people will have the same result as hiring team members too soon, which will deplete your funds more quickly than you would like. It’s unpleasant to be understaffed, but it’s game over if funds run out too soon.
It’s difficult to strike the right balance between having too few employees and too many. However, it’s best to err on the side of understaffing rather than overpaying for unnecessary personnel.
Look for signs of burnout or declines in productivity, and discuss with your team whether more staff should be brought on board. You can also choose to hire contract workers or part-timers in the interim, then move up to full-timers when you’re ready.
5. Non-Quantifiable Advertising
Getting new customers is crucial when launching a new company. It’s particularly difficult since you’re often trying to define product-market fit for the first time.
Unfortunately, this implies that you can easily spend a lot of money very rapidly, attempting every conceivable strategy to increase sales (which is problematic because you can only spend so much money).
Because of this, every marketing plan you adopt should result in quantifiable outcomes. Make sure your efforts are indeed yielding the return on investment you had anticipated. If not, you can unintentionally spend more money on customer acquisition.
6. Reactive Tax Planning
Entrepreneurs might lose a lot of money if they react to taxes reactively rather than proactively. Major tax surprises can arise from trying to handle your firm alone or from working with an unprofessional accountant who doesn’t understand it. The best method to ensure that you don’t have any expensive tax surprises is to work with a CPA who is knowledgeable about your sector and has a proactive tax planning strategy.
Prematxure Scaling
One major way statups lose money is the business’s premature scaling. When you are first starting out, hiring employees before they are truly needed or renting an existing office space to establish a presence are both needless and significant financial drains. Hire your first employee as late as possible, and if at all feasible, start by developing your systems rather than filling positions right away.
7. Memberships and Subscriptions
It’s easy to get sold into a variety of memberships and subscriptions when you’re first starting out, some of which you’ll utilize but the majority of which will eventually become unnecessary. And even though they might just cost a little amount—$10 a month here, $300 for an annual subscription there—they still add up.
List all of the memberships and services to which you currently subscribe. Next, consider how frequently you really use each subscription or service—not how often you hope to use them in the future. If you do utilize these subscriptions and memberships frequently, try to calculate the cost of your return on investment. Cancel it if it isn’t possible financially to continue paying for it.
So, this was about the top mistakes startups make in finance. Hopefully, you found it helpful and interesting Please share this post with other entrepreneurs if you find it useful and interesting. You might have to spend a few minutes on it, but someone else might end up saving a significant amount of money.
