Starting a business can be an exciting time, and the idea of being your own boss and doing what you love is alluring to many. However, with startups being so young, they’ll have additional deficits from their initial costs.
While there are essential costs every business needs to pay for its day-to-day functions, it’s easy to get carried away in the early stages and spend on products or services that don’t necessarily enhance your company or attract potential customers. Having too many unnecessary expenses is a sure-fire way to rack up company debt, hindering your company’s chances before turning a profit.
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Unnecessary expenses to avoid
Hiring too many employees too soon
Startups may struggle to do all the work with limited staff. Should this happen, it can be tempting to take on more staff to manage the workload. Small businesses may hire more staff in preparation for future expansion. However, full-time employees need salaries regardless of whether the work’s there to pay them.
While taking on part-time or subcontracted employees for specific roles could help in the short term, hiring too many full-time employees before the company really needs them can drain the cash reserves and even land your company in financial trouble.
Unneeded utilities
Depending on your sector, your business could need specific tools and utilities to deliver a service or products. These tools and utilities could be software to produce graphics or videos, or tools and machinery to produce stock.
Depending on the capabilities and amounts required, these can be expensive. If you’ve done your research to ensure you get the best-rated gear, it can be tempting to invest in the flashiest product on the market with the most advertising regardless of how suitable it is for your company. While these features may look good on paper and factoring in future growth isn’t necessarily a bad idea when you’re starting out, it might be wiser to focus on what’s absolutely needed at the time. Otherwise, you risk paying out for tools or utilities you might not need until the company grows to a size that justifies them.
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Unsuitable premises
On a similar note, a shiny, pristine, or cool and hip office space can look great to prospective clients or on social media. While a great prospect, if the company is in its infancy, an office can be an extremely costly investment.
You may attempt to justify a large, expensive office, larger than what your business really needs, as having room to expand. While there’s no harm in planning ahead, upscaling before the business needs to and spending money on facilities larger than necessary and more expensive than what’s realistically affordable is a quick way to deplete your cash reserves.
Office space can be costly, and the COVID-19 pandemic has highlighted how companies can adapt to working from home if needed. With this in mind, having your staff work from home could save your startup funds that could be better used elsewhere.
Branded merchandise too early
With a plethora of companies offering custom merchandise, some at very low prices, it may be tempting to go all out and slap your company logo on everything from T-shirts and stationery to coasters and a mural to hang on the office wall. While the relatively low cost of such an indulgence can seem harmless, and in some cases allows for extra publicity if your staff are working out in the field, doing so for the sake of it could waste money that could be better spent elsewhere.
The wrong sort of promotional material
On the subject of marketing, once you’ve got the business set up and the doors open, you’ll want to make sure people know you’re there. However, marketing is a whole specialty in itself and requires at least some research before investing. Different demographics interact more with certain marketing channels than others, so investing in the wrong type of marketing or an avenue not suited for your target audience can lead to money down the drain. Just because everyone else is marketing a certain way doesn’t mean it will necessarily work for you.
Excessive expenses
Once you start incurring expenses, such as paying for fuel, parking or train tickets, you are allowed to claim those expenses back from the company. While some of these expenses can be reclaimed when declaring tax, you may not be able to with others, and the company needs to survive long enough to make those declarations. Amassing excessive expenses or overspending with a mindset that the company will cover it can drain the bank account. You should think carefully in the early, delicate days whether the expenses are truly justified.
On a similar note, with all the stresses and pressures of starting a company, if you’ve had a particularly good quarter or a big contract has just paid out, you could be tempted to host a big party at a fancy venue or treat your employees to an all-expenses-paid day trip. Success should be celebrated, but the expense of those celebrations should be proportionate and not risk putting the company in the red. If your business is still in its infancy, it’s still in a fragile state. That money spent on the day trip in the most expensive conference room could be better left in the bank account until the business is in a stable position and able to support itself.
In summary
Overspending when your startup business is still young can drag it down before it has a chance to shine. Upscaling too quickly by hiring too many staff, buying expensive utilities and tools, or investing in premises larger than you really need can drain your company’s financial reserves at a time where they’re still vulnerable to large, unforeseen outgoings and knockbacks. Do your research before committing to any kind of marketing, particularly whether it will reach your target audience before investing in channels that might not be suitable. If you invest in branded products, ensure it’s not just for the sake of it. Be careful with expenses you claim back from the company or splashing out on indulgences in reward of success when that money would be better saved. Cutting back on these unnecessary expenses early in the game can help ensure your company comes out of the gate stronger.
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December 1, 2021 at 12:02AM by Wilson Field, Khareem Sudlow
