No mistake can tank a business quicker than unfocused or undisciplined budgeting. Although many entrepreneurs refer to this blunder as overspending, what it really means is spending on the wrong things at the wrong time.
Money spent properly usually results in decent and quick profits. On the other hand, haphazard spending will deplete your business of the capital you need to stay afloat.
If you are looking to become an entrepreneur, you’ll need to avoid making these spending mistakes that can harm your business:
1. Financing with a Personal Credit Card
There will come times in the lifecycle of your business when you need more funds than you have on hand. During these periods, entrepreneurs with sufficient credit often make the mistake of using their personal credit cards to make up the difference.
The interest rates on these cards versus nearly any other source of funds means you’re shelling out far too much for that money.
Your profits, at best, cover the cost quickly and you lose vital earnings in the first year of your business. The balance, at worst, stays put for months or even years. This has the unfortunate side effect of accruing interest and bumping up the amount of profit you need for your business to support you.
As a business owner, you need to separate your business and personal spending. Use your personal funds and line of credit to pay only for non-business-related stuff, such as groceries, utilities and a home mortgage loan. If you need to fund your business, secure the appropriate business loan or find extra investments.
2. Attending Expensive Conferences
When you are just starting as a business owner, you may need some resources, networking and information that retreats, conferences and seminars offer. Although there’s nothing wrong with attending these events, many don’t notice that they’re going overboard. They attend conferences that drain their bank accounts.
If you are going to attend conferences to help benefit your business, choose networking events wisely. Before attending any event, define your networking purpose. Look at the events you’ve previously attended and tweet prior attendees about these events for input.
You can also enjoy the benefits of a conference without having to shell out money for one by speaking with the leaders in your industry. Invite them out for coffee, lunch or dinner and soak up as much information as they will share. Receiving excellent advice directly from them early on can change your company’s trajectory and help boost your bottom line for years to come.
3. Allotting Funds to Untargeted Marketing
Some companies make the mistake of allocating a large portion of their corporate budget to general advertising. Although a magazine ad or a well-written blog can be influential in legitimizing a business, most companies won’t enjoy the return they are looking for in general advertising.
Having highly targeted advertising strategies (e.g. Google Ads, Facebook), coupled with boosting your web presence and networking, can deliver a greater return on a company’s marketing dollars.
4. Picking the Wrong Office Space
Setting up your store or shop in an elegant loft or a hip ZIP code may be appealing to your brand’s ego, but you don’t get a lot of benefit from doing this.
Unless you happen to be a restaurant catering to investment bankers, many new companies simply do not need a luxury office space or a prime location. Working conservatively in terms of office space can go a long way to save you money.
Take your time assessing the needs and requirements of your business. Search for viable locations that won’t drain more than 20 percent of your monthly expenses. You may find that operating out of a home office or using a co-working space is enough to get the job done. Remember that outgrowing your current location will cost your new business less money in the long run than pushing to grow your business in an oversized location.
Going over your budget is bad – but so is spending far too little for your company. Minimizing expenses is important, but you don’t want to do so at the expense of the long-term success of your business.
Certain expenses can put your business on a quicker trajectory toward success. Some things that could be worth the investment for your business include creating spiffy customer-facing lobbies, delivering excellent customer service, investing in salaries for great employees and spending in the right marketing strategies. As a budding entrepreneur, don’t be afraid to spend on investments that will give you an excellent return.
Every penny counts for business owners. By being mindful of these financial mistakes, you can protect your bottom line from inappropriate spending.