Every new business, or sometimes old businesses, are wasting money in one way or the other. The money is being wasted on minor things or sometimes big things. The worst part is that the waste of money can be avoided, but the business owners are often unaware of how he/she is wasting the money. These small or unnecessary costs and expenses can decide the fate of the business as they impact and become major components for deciding the profit and loss margin. Consequently, these expenses deserve attention on behalf of the owner and should be monitored.
It is a known fact that many business costs are inevitable. There is also diversity among the different business costs in terms of value. If a business is paying too much for marketing, rent, and travel, it can greatly reduce the working capital for the business that helps in times of dry periods. However, if the business knows where this huge chunk of money is being wasted, a lot can go right for it.
Even if you consider yourself a budget-conscious person, know that you can also unknowingly spend too much money on the business. Humans, by nature, are prone to being bad with money over a period of time. Many experts believe that worrying about wasted money in a business is a waste of one’s mental resources. However, this does not mean that one should spend more than their potential.
The old saying, ‘you have got to spend money to make money,’ says a lot about spending too much money on businesses. It is, in reality, true for the most part as most parts of modern businesses require big chunks of investments. However, it still does not mean that you spend more than you should just because you have to as spending too much money won’t necessarily guarantee success. In most cases, money that is being wasted without being monitored is often more harmful to the business than doing anything good. To prevent these shortcomings, here are a few ways to know how you could be spending too much money and how you should change it.
Outsourcing Too Many Tasks
There hundreds of tasks that need to be done at all times in a business. Many people believe that most of these tasks are too overvalued to be taken care of by the business itself. As a result, these tasks are outsourced, and money is spent on them. It is, in fact, true that many of these tasks need to be outsourced because of how complex and complicated they are. Where businesses go wrong is when they incorporate the idea that outsourcing every other task will make things a lot easier for the business. It definitely does make things easier for the business, but a lot of money is being wasted at the same time. Many of these tasks
can be handled by the business itself. The money spent on outsourcing them is simply money wasted.
Using better Technology than required
Technology is in trend in the contemporary world. Everything is in one way or the other related to Technology. And this is where businesses waste money. It is very common for businesses to waste money by deciding to buy the latest and brand-new Technology. The up to date technology is fast and quick and does miracles for the businesses. However, the efficiency goes to waste when the business does not actually require what Technology is doing for it. In many cases, Technology is capable of doing more than the actual capacity of the business.
It is highly recommended that only Technology that is necessary for the business is bought. Buying the latest and brand-new devices won’t do any good at the time when it is not required. You may need it in the long run, but it should only be bought when it is actually needed. Buying it beforehand will make it obsolete and increase your business expenses. As a result, your overall budget goes down, and you might find yourself in a cash shortage.
Marketing is the key to success in any business. It can boost up profits exponentially. However, it is not easy to master this department of the business world. Marketing Is often quite risky and should be done very carefully. People who jump into marketing for the first time think that spending more money will lead to better marketing and as a result increased profit. This misconception leads to people spending too much on their businesses. The product you are selling, the way your market it, your target audience, and the budget for marketing are all important than just spending excessively on marketing.
You need to research your product and figure out what type of marketing will be more effective for your business to prosper. Figure out where your target audience is and only focus on that medium of media. Avoid implementing marketing strategies that don’t suit your product and using media platforms that don’t accommodate your target audience. Going for the most expensive option is just a waste of money. However, going for the right option will generate more money.
Poor Tracking of Expenses
Another very basic and common factor that leads to wastage of money for businesses is the poor tracking of expenses. You spend money, you don’t record it, and so your cash flow is
disrupted. Once the cash flow is disrupted, your budget can reach the cap before you can even realize what’s happening and over-expenditure will take place. Every small expense can add up to something big in the long run, and therefore, it is vital to keep a record of each and every little and a big expense. If you are aware of what you have spent and the amount that is left to spend, you can make more mature decisions for the business, which will have a positive impact overall.
More Staff than required
Overstaffing is another way new business and sometimes even business that has existed for longer waste money. Some businesses have a manager for everything. They don’t realize that keeping it simple is better than making it complicated with overstaffing. Look over your business and see how many people you need to run it smoothly and only hire that much. Don’t overstaff just to fill in the positions you create yourself but aren’t necessarily required for the business. Look out for people who don’t have much to do with their job and merge two jobs into one for them.
The owner of a new business or business, in general, should try to do most of the things on their own and lean towards freelancers for help in certain departments. If they need constant help in a department, only then they should hire someone permanently.
Poor Decision making
It can be regarded as the most common way businesses waste money. Every businessman finds himself in a dilemma once in a while. This dilemma can lead to extremely poor decision making that has a negative impact on the business in terms of costs. A poor decision always leads to loss of money in one way or the other. The business owner should carefully assess the pros and cons of a decision and take the consensus of the whole team aboard. Only then he can take better decisions and avoid the loss of money. Poor decisions can be regarded as spending too much money in business because they only lead to loss of money, and that means you have to compensate for the loss by spending money from your own pocket.
Like buying the latest and brand-new Technology, another mistake businesses make Is the purchase of fancy equipment for the office. This is another potential way to waste money in the business. Most of the time, a business can do without fancy equipment. They should only focus on what they actually need and avoid impulse purchases as they only reduce the overall revenue and profits.
Everyone’s business is looking forward to growing bigger than its current size and dig into broader markets. However, in this pursuit of growth, many businesses indulge in premature purchasing, which is the purchase of things required for growth before they are actually ready for it. This results in spending too much in the business when it is not even required. In most cases of premature purchasing, the growth period is delayed, the business is left hassling with cash flow struggles. Therefore, it is recommended to buy things on when it is the right time for them.
Purchasing Things that Need to be Built Naturally
Whenever someone starts a business, they look for overnight success. People who are impatient suffer from this, and it mostly backfires unless your luck is extremely good. In pursuit of quick success, businesses go for unnatural ways to achieve things. For example, a blog might buy inorganic likes on social media to have a convincing impact on the audience and get into the business. It works in the short run, but in the long run, it won’t do you any good.
Moreover, your unnatural ways will come out at one point or the other. Some businesses even buy email lists of existing buyers, and as a result, many emails are claimed as spam. Building things naturally sure does take a lot of time and effort, but once it’s done, trust and loyalty are developed, and it nourishes the business in the long run. Sometimes, there’s no escaping the fact that certain parts of a business need to be built naturally, and not just bought.
Many startups today require loans to begin operations. However, businesses have taken upon this trend and think that only a loan can get them up and make them successful. As a result, they end up spending too much money on taking loans, which then require interest payments that results in further expenditure. As a result, businesses today end up wasting more money than they should on loans.
It is always recommended to try to do without borrowing money and maybe start smaller than you have planned than taking a loan and starting bigger.
Another area where majorly new businesses spend too much money is professional branding. They start looking for a fancy logo and taglines that usually cost a lot. That is the last thing for them to worry about. It is more important to work on the business itself than on the fancy stuff. Once the business grows, professional branding and fancy stuff will come with it.
Spending thousands on a website
New business owners or even businesses that have been in the market for a while making the common mistake of spending too much on a website. It is only worth it to spend more money on a website If your business has generated a name in the market. On a smaller and younger level, mini sites, blogs, sales pages, and social media branding will do just the right work for you and get you the best return on investment.
Inefficient use of personnel
New businesses hire personnel but what they don’t do is train them. Relying on them to learn on their own is not the right approach. What you need to do is train them to use their time efficiently and effectively so that it makes things easier for them as well as you. in this way you can get more out of a single employee and won’t have to spend too much on hiring more. Moreover, their efficiency will also increase revenue. Make sure they are not spending more free time doing random stuff as that is where it will cost your business.
Many entrepreneurs stick their focus on developing a brand image and as a result, spend too much money on unnecessary things. This results in removing their focus from things that will actually generate more revenues and profits. As a result, high-end office equipment, automobile, and expensive AV equipment fall under premature purchasing, and the business suffers.
Securing office space unnecessarily
Securing office space unnecessarily results in huge chunks of money being wasted over the long run. Only get an office space big enough if you are meeting clients. Otherwise, there is no harm in working remotely through the internet and make use of thousands of software available online to hold meetings from the comfort of your homes.
These were some of the most common ways business owners spend too much money on their businesses.
Take your business to higher levels
Now let’s have a look at where you should actually be spending money to take your business to higher levels.
The right tools.
Suppose you own a restaurant or bakery. To run it smoothly and efficiently, you need to have the right equipment, utensils, and stoves, etc. this is not just to maintain the quality of the product but to increase the efficiency and productivity to save up on costs.
In the same way, when you have a business startup, you need to have the right tools in the form of equipment that increases the efficiency and overall productivity of the business. This is the area where you need to be spending too much money. Even if your business is selling a service, the right tools are still required. The quality of the service sure matters but again, fast speed and efficiency matter too. Make sure you have the right equipment, such as a computer, to execute your service efficiently and quickly. Apart from a computer, it mainly depends on the type of service you are providing and the equipment it requires.
Again, it is not recommended by the latest and greatest tools because that is simply spending too much money for no good reason. Buy the equipment that is actually going to fulfil your purpose, not overdo it.
The right workspace.
The right workspace does not mean a fancy workspace that is appealing to others. The right workspace means a safe and comfortable environment for you and your employers to work productively. Some examples could be a comfortable chair where you can sit with ease and work for long. Similarly, the environment of the office space should be set up in a way that it excites you to work. Avoid making the mistake of making it a fancy environment to impress people. Just make sure you only spend money to make it more comfortable, productive and appealing to you and the employees.
Items that touch the customer.
Here’s a basic principle. Burn through cash if the cost makes you or your employees productively beneficial. Burn through cash if the cost makes you or your employees productively energetic and increasingly anxious to continue pushing through all the startup challenges.
Otherwise, when your assets are restricted, just burn through cash where it touches the client.
The right team.
It won’t matter if you are hard-working and dedicated if the team you have chosen for the business is not suited for the tasks. Every business owner, at some point, will need help. This is when you need to make sure that the team you choose is best suited for the tasks you have for them. If you are able to achieve the dream team, which takes a lot of time and training, you will be saving up on a chunk of costs.
The Bottom Line
You must have realized by now that most business owners are spending way too much money in their business than required even if they don’t feel like it. We have highlighted some of the most common ways businesses make this mistake. If you make yourself avoid these shortcomings and try to cut down on spending too much money, you will be saving a huge chunk of profits for the business. We have also pointed out a few areas where you should be spending a good amount of money to help the business prosper.
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.