“You have to spend money to make money.” It’s a well-known idiom and there’s certainly truth to it. But there’s more to making money than just spending it and entrepreneurs and small business owners have to be extremely careful with their cash flow if they want their business to succeed. With all the things a small business owner has to consider, it can be all-too easy to let costs get out of hand before you even know it. Very few entrepreneurs have money to burn, yet many small businesses lose a lot of money to “waste” every quarter. Here are 4 things that experts say most small businesses waste their money on – and how you can avoid making the same mistakes!
As a small business owner, you want to exude an air of success from the minute you open your doors but there are certain ways to go about it. Don’t go all-out decorating your office, buying unneeded technology, staying in the best hotels or eating at the nicest restaurants all on the company’s dime. Spend the company’s money as if it were your own—as, after all, it is—and instill the same value in your managers and anyone in the company who has buying power. The cost of even small luxuries can quickly add up and all that money would be better spent on things that will help the company’s bottom line.
It can be difficult early on to estimate how much inventory your business will need to keep on hand and it’s tempting to always err on the side of too much rather than too little. But excess inventory is a major cash sink for many small businesses. It’s often better to sacrifice a little gross profit in order to have some cash reserves on hand to adapt your business in the event of unforeseen challenges or needs.
3. Throwing Good Money After Bad
*Also called a “sunk cost fallacy” It’s tempting to continue pursuing a project once you’ve invested in it, even if it doesn’t look like it will pay off. If a project starts to go over budget or just doesn’t pan out, cut your losses early rather than continuing to try to salvage a sinking ship. An investment is only as good as the return it’s going to get you and if an investment isn’t paying you dividends, then putting more toward it, no matter how tempting, is probably just throwing good money after bad.
4. Hiring the Wrong People, or Not Hiring the Right Ones
One of the biggest things that experts tend to agree on is that small businesses throw away a lot of money by hiring the wrong people. Many small businesses don’t invest enough (or at all) in hiring for key positions. Minimizing salary expenses by hiring inexperienced or unsuited people in important roles leads to bigger costs and lower revenues down the road. Other small business owners attempt to take it all on themselves and eventually burn themselves out. It’s best to place a premium on your own time and use it to focus on what you do best, while hiring good people to do everything else. This also goes for hiring vendors and contractors. They should also be vetted out in the same manner you would a potential employee because they are in essence, helping you grow your company as well.
One major place where small businesses under hire is in bookkeeping. Many experts cited bookkeeping, taxes, financial analysis, and related jobs as one of the main places where they’ve seen bad hiring really cost a small businesses money.
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