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What Do Small Businesses Buy Too Much Of, Too Early?

Small businesses typically operate with lean budgets. That’s no surprise to just about anyone reading this, and most potential entrepreneurs know that going in.

But despite that knowledge, many small businesses still end up spending too much on things that they believe are necessary. In some cases, these expenditures are never really necessary, although in others, it’s just a matter of timing – there’s such a thing as “too soon” in business.

Making the right spending decisions early on won’t make your startup flush with money, but it will give you a little more breathing room – and allow you to spend that cash on things you need in the here and now.

The following are five things that many small businesses either spend too much on in general, or load up on too early in the business lifecycle.

1. Space

We’re certainly not suggesting you immediately embrace tiny-office hotdesking from the start and never look back – indeed, hotdesking is rife with problems and shy on upside.

But many small business owners wildly overestimate how much space they’ll need early on. That has a real cost – higher rents – and that problem can balloon quickly when you have to operate in a high-rent district. Your first office likely isn’t going to become your corporate headquarters, so determine the office space that will adequately serve your plucky upstart now and after a little expansion.

Also consider the type of space you really need. If you’re a restaurant, bakery or retailer, you’ll obviously need storefront real estate. If you develop apps, however, you don’t need that kind of visibility – a traditional office building will suffice. The same application of common sense goes for signage and fixtures; spend on what you need now, not on what you’ll need in 10 years.

2. Office Furniture/Technology

Once you have an office space, you have to furnish it. One of the biggest temptations that small business owners have is to outfit their office in a way that projects their vision and what they want people to see in their company.

Slow your roll.

The two things that say the most about your business, especially early on, are the product and the people running it. Office space, especially for any company that isn’t food- or retail-oriented, can be simple and functional early on. Your business’s fiscal survival matters far more than splurging on edgy, futuristic desks and a Pop-a-Shot for the rec room within your first six months.

Technology is a squishier subject that requires a small business owner to know their industry and know how essential it is to have the most up-to-date gear. Going back to the app developer: Chances are spending on newer computers and other devices is a must … but they might not need a top-of-the-line office printer. That said, if you’re opening up a ramen house, you likely won’t need a dozen MacBook Pros.

3. Marketing

It’s difficult to get by in the business world without spending – sometimes copiously – on marketing. But it’s easy to get caught up on spending prematurely on too much marketing, or in some cases, spending mindlessly on marketing that isn’t positioned to help you.

Small businesses frequently spend too much, too early, on bulk business cards and other physical marketing materials. You might need those things, but be realistic when you assess how many of those things you’ll need, especially in your first year or two. If you don’t do much in-person networking, business cards end up sitting on a box in a desk drawer. What’s the point of elaborate signage when your business is primarily internet-based – spend that money nailing down an effective online marketing campaign instead.

Also, early on, focus on measurable marketing. While PR firms are nice, their efficacy is extremely difficult to quantify – which is fine if you have a bulging marketing budget, but you don’t. Instead, make sure your marketing spend is dedicated toward reaching your target market in a tangible, measurable way.

4. Inventory

It doesn’t matter whether a company is celebrating its first birthday or its centennial – too much inventory is always a no-no.

A warehouse full of unsold inventory might as well be a locked-up vault of money. Your cash was spent on all that inventory, which means it can’t be spent on anything else until you actually unload your goods. Don’t overstock for a rainy day – keep a tight eye on inventory to ensure you can meet demand, and keep your cash free to go where it’s most effective.

There are other downsides to overloading inventory, too, such as demand for that inventory suddenly falling off a cliff once you or a competitor launches a better version of it. That forces business owners to slash prices, thus slashing margins and possibly eating losses. Also, anything you store requires space, and if you pay more to store inventory that’s not getting sold, you’re taking an additional unnecessary financial hit.

5. Personnel

You don’t make it big without bringing on some help. But small business owners can and often do fall into the trap of hiring their first employee, or bringing on additional hands later on, before the company is really prepared to make that position work.

We’ve laid out several ways to know whether your small business is ready to start hiring workers, but one of the most vital questions you have to answer is, “Is there enough work to justify the cost?” We’re not just talking about salary, either – you’re also typically investing a lot of your own time on recruiting new employees and filling out new-hire paperwork.

In short: Helping hands are essential, but get the timing right.

So, how do you spend your money wisely early on? McManamon & Co. can help you in a number of ways. We offer paperless office consulting that helps businesses go digital, which results in long-term savings on things such as paper and office equipment. Our experienced team also provides tax services that help small businesses position themselves to earn tax breaks and deductions.

If you’re looking to make the right financial steps early on, reach out. You can call us at 440.892.9088 or  contac t us online today.


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