If you’re a small business owner, you know firsthand that every dollar counts.
The less you spend on activities that don’t directly impact your business, the more money you’ll be able to apply straight to your bottom line—and back into capital to help meet your business plan vision.
Those dollars could be invested in more equipment, inventory or marketing muscle, or they could equate to a larger paycheck for you to splurge on something exciting, like, you know, food.
But, you probably also have heard that you have to spend money to make money. So, how do you know which expenses will help the bottom line? We asked around and found seven categories where small business owners might be overspending and not even know it.
Take a look at your own financial statements to see how yours fare—and consider if some cutbacks or changes might help meet your financial goals.
Overspending trap 1: Excess staff
Managing payroll and its associated taxes can be costly, but that’s not the only expense that employees inflict—you also have to train and manage them.
That’s why it might be wise to use contractors for tasks that are traditionally handled in-house. For example, a live receptionist phone service can provide the personal touch you want to offer your clients, but without the cost of employing a full-time receptionist.
Another smart option for a wide variety of support services is using a virtual assistant, who can be hired on a per-task basis, or by the hour, to handle jobs that otherwise might clutter your plate.
Independent contractors are also a smart choice for specialized services. As experts in their particular field, they can execute on day one, and you can feel confident you are receiving the best possible assistance without paying a full-time specialty price. As an added bonus, they often can help your business by sharing best practices they can adapt from other clients. For example, a social media contractor will be adept at the latest SEO techniques, allowing you to take advantage of their expertise.
Overspending trap 2: Unused subscriptions
We’re not even talking Netflix and its companions, although those expenses can add up fast—and, yes, most people vastly overspend on their entertainment consumption. But, business subscription can take the form of everything from media to software support services, and the costs can often sneak up on you.
While big companies might be able to justify numerous subscriptions because they are used by so many people, in the short-term they can be a cost killer for small businesses, especially since you might not be aware of how quickly they are adding up.
An audit can help shine a light on whether you are frivolously buying redundant or unused subscription services. Look at your credit card balance and financial statements to add up all your monthly obligations and determine if some cancellations, or even downgrades, to a free product, are in your future.
Overspending trap 3: The latest technology
Technology is constantly improving, and keeping up with it can be a never-ending game of chase. After all, a new model of tablet, laptop, smartphone or PC is constantly being released, loaded with features intended to change your world.
However, those expenses can be significant, not to mention the cost of productivity related to the learning curve that comes with each new iteration.
While you don’t want to skimp on technology that can help you do your job more professionally or effectively, you also rarely need the latest and greatest of anything—and certainly not of everything. Assess your needs and only upgrade if you can see a substantial benefit.
And, while you shouldn’t spend to excess on new technology, you also should be mindful of your expenditures on old technology. If you don’t use a landline, get rid of it. And, ruthlessly check for features on voicemail and other tech services that you’re paying for but don’t need.
Overspending trap 4: Untargeted marketing campaigns
The ways to overspend on marketing are endless—and they vary depending on your business model and target market. In other words, what’s ineffective for someone else might be highly effective for you—whether it’s a custom website, pay-per-click ads, print ads, coupons or sponsored posts on social media—the list is endless.
The best way to avoid overspending on marketing is to get some good counsel from an all-around marketing source. Not a PR firm, which will recommend PR. Not an ad agency, which will suggest ads. Not a social media firm, which will sell you on the benefits of …you guessed it … ads.
Other marketing expenditures that can consume precious dollars include local sponsorships, where you make a donation in order to receive logo placement on banners or in programs. If the group or cause is one that you want to support, then this can be a smart use of funds. But, if you are hoping for visibility, you may be disappointed in how few people take notice.
Hone in on your target customer and make sure that every marketing expenditure is designed to reach them. Next, carefully track ROI for each activity to ensure that every marketing dollar spent is being used in the best possible fashion for your specific small business.
Overspending trap 5: Unnecessary office space
Many entrepreneurs decided that their “brand” would be better served if they had a
luxurious office space with their name prominently displayed. But, many small businesses can function just as well out of a home office, and growing companies rarely need high-dollar space.
Consider whether clients routinely come to you and, if so, do they expect a fancy office space? Keep in mind that some might, especially if you’re in a particularly image-conscious field, while others might question whether your high billing rate is justified if it’s going to external trappings. Figure out the norms for your industry and follow along.
If office space is important, see if you can conserve elsewhere, whether it’s in size, amenities or location.
Another viable option might be coworking space, where you can use shared conference rooms, admin staff and other services. These also allow you to have a physical office address if that is important.
Overspending trap 6: A brick-and-mortar store
Consider this the cousin of office space for retail companies. Of course, a physical store is often vital to your success, but if you are just starting out, you might consider if a virtual online store would help save money as you build your clientele.
A store can come with crippling overhead from rent, staff costs, inventory needs and more. And, the worst part is that you are often tied into long-term contracts that can be painful if the economy changes.
Overspending trap 7: Directories and databases
The “yellow pages” are all but defunct, but there are many online services that have taken their place, and many of these “free” online business directories make their revenue by charging a monthly or annual upgrade fee for special perks, such as priority listing placement. Unless the directory is extremely well-trafficked and relevant to your business, paying to upgrade can be a costly waste.
This principle extends to buying databases or memberships in groups like professional trade associations or the local Chamber of Commerce. While these can be useful costs if you are making the most of them, take a hard look at every membership or directory fee to make sure that it’s pulling its weight, in terms of driving business or providing access to lucrative clients.
In today’s world, it can be tempting to tap into all the streaming services, technology and marketing tools at your fingertips. But, overspending on “wants,” rather than “needs,” can be crippling to what matters the most—business survival, growth and longevity.
The bottom line is that small business owners need to watch every dollar in order to reach their long-term goals. Getting out of the overspending habit preserves your capital, bulks up your savings account and helps avoid incurring credit card debit.