5 Costly Spending Mistakes Small Businesses Make

by Brandi-Ann Uyemura

3 min read

Marketing strategies, new equipment, and educational courses seem like practical purchases for a new business. But do you really need them? When you’re on a shoestring budget, extra expenses can drive your startup into the ground. Here are five costly mistakes new small businesses make, with expert tips on how you should spend your money instead.

1. Buying to Impress

The idea of purchasing the newest electronics, equipment and marketing products to impress your customers or clients may sound appealing. But don’t open your wallet just yet. Financial coach William Ray says resisting the urge to splurge is a wise decision, at least initially. “Far too many young businesses fall into the trap of thinking you need the latest and greatest gear and electronics. They don’t. The object in a startup small business is to attain profitability, not to impress other people. Buy the essentials, and go make some money with that. Then you can move up in gear.”

Business and career coach Makenzie Chilton learned that lesson after purchasing creative business cards she didn’t need. “I’ve probably given out 50 cards in a two-year period,” she says.

While custom business cards and fancy equipment are nice to have, she reminds owners to “consider the utility of the shiny new object you want. Your focus in the first year should be solely based on what will drive your business forward.”

2. Allocating Funds to Untargeted Marketing

“Some businesses make the mistake of spending a large percentage of marketing dollars on general advertising,” says Ray. While he says that a blog or magazine ad can be influential in legitimizing a business, most businesses won’t get the return they’re looking for in general advertising. “Highly-targeted advertising (e.g. Google AdWords, Facebook), networking and referrals, and improving your web presence… are going to provide a greater return on a new business’s marketing dollars,” he says.

3. Attending Expensive  Conferences

When you’re first starting out, you may need some of the information, networking, and resources that seminars, conferences, and retreats offer. But it’s easy to go overboard. “Choose networking events wisely. Define your networking purpose before attending an event. Look at past events and tweet prior attendees about it for input,” Chilton advises. To get the benefits of a conference without having to pay for one, she also suggests that you “talk to leaders in your industry… take them to lunch or coffee and soak up as much information as they’ll share. Good advice early on can change the trajectory of your business and increase your bottom line for years to come.”

4. Spending to Avoid Tax Liability

Surprisingly, some small businesses spend purely to spend. “Too many small businesses just starting up spend their profits on things they don’t need right then simply to avoid tax liability,” says Ray. For example, “if you made $50,000 in net profit, you’ll owe between $10,000 to $15,000 in taxes. Some businesses would rather spend their earnings than see their hard-earned money go to taxes.” But he advises against it. “A business should absolutely make necessary investments, and take the tax deduction for it. But spending unnecessarily just to avoid taxes is foolish.”

5. Doing It All Yourself

When Chilton started out, she thought creating her own website sounded like a good way to save cash. That is, until she realized how much of a money and time drain it put on her and her business. “I paid for approximately four different website design themes and purchased a course on how to do it yourself. Then I spent hours and hours creating a website that was live for only three months. As business owners, we put a ton of pressure on ourselves to occupy multiple roles. The lesson here is to recognize what you are good at and… hire out the rest.”

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