When you start a business, the focus is usually on getting customers. “We need business!” you shout to your team (or yourself, in the mirror, if you’re a solopreneur).
Getting customers is definitely important. But there’s something else that is equally important that many new entrepreneurs overlook.
In fact, it can have just as much good effect on your bottom line as finding more clients.
Neglecting this area often causes businesses to fail. Loads of them do — the Small Business Administration reports 50 percent of business startups close before five years.
In 20 years of talking to business owners and watching businesses come and go, I’ve learned there’s one important thing most failed businesses neglected that played a big role in their demise.
Why do most businesses close their doors? Because they run out of money.
And often, they run out of money not because they didn’t find any customers.
They go broke because they spent too much. Plain and simple.
Common overspending mistakes to avoid
Here are some of the most common ways new businesses overspend, and tips on how to cut these costs:
- Skip the fancy designer. It’s common for online startups to sink thousands into a high-concept website design, only to discover they have a flashy, splashy site that doesn’t actually make any sales. Instead, keep it simple and cheap to start. See if you could trade design services in exchange for something you sell. Barring that, find a design student at your local community college — those kids need projects to do for class, and work for affordable rates. You don’t have to outsource to the Philippines to find cheap help (though that’s an option some owners use). You could also consider doing it yourself if you have basic website skills. Remember that websites keep getting improved and don’t have to be perfect on day one.
- One website at a time. I keep meeting people who proudly tell me they’re starting several blog-based businesses at once — but I have yet to meet a successful entrepreneur who’s done that. Keep it simple and keep your costs down by starting and building one business at a time. Once one is ramped, think about starting another. Then, the established site can help fund startup costs for the next business.
- Re-bid recurring service costs. When’s the last time you cost-compared your Internet provider, website host, transcribing, file storage, telecommunications, or other recurring monthly service? These costs tend to get forgotten and many owners consider them an unavoidable cost of doing business. Instead, get them rebid every six months to a year to see what new offers have come out. Also look for free trials and free equivalents for products and services you use — consider free LibreOffice or Apache Open Office instead of Microsoft Office Suite, for instance.
- Cut energy use. Online businesses tend to suck a lot of power. Could you power off devices that aren’t in use, instead of leaving them hooked up and drawing “phantom power” all night? Switch to lower-watt light bulbs? Embark on a serious electricity-cutting plan and you could cut your bill in half.
- Think small footprint. When it comes to brick-and-mortar type businesses, I’ve watched far too many startups sign their death warrant by committing to a 12-month lease on a big office or storefront right off. Instead, consider if you could start online or work from home. If not, look into a co-working office space, sublease from an existing retailer or warehouse, or place your product on an established store’s shelves before you look to commit to your own space. If you need a physical presence, start with a kiosk, mobile truck, trade-show booth, or temporary “pop-up” store before pulling the trigger on a lease commitment.
Once you’ve looked at these areas, keep looking for more ways to control costs in your business. Make it a habit to question every expense and look for a way to reduce or eliminate it.
Developing the money-saving habit and you’ll give your business a better shot at surviving long enough to grow and thrive.
How do you save money in your business? Leave a comment and tell us how you’re cutting costs.
About the Author: Carol Tice started the six-figure online business Freelance Writers Den in 2011. Her new book is The Pocket Small Business Owner’s Guide to Starting Your Business on a Shoestring (Allworth Press). Learn more about her at caroltice.com.