10 Essential Startup Expenses, and 10 You Should Avoid
It’s no secret that startups often fall into the trap of spending money on things that aren’t that important -- it’s just one of the many mistakes that entrepreneurs can make.
However, the fact that some expenses are unnecessary doesn’t mean that you need to be a cheapskate whenever you encounter a potential cost. In fact, some expenses are absolutely necessary, and as an entrepreneur, it’s essential that you know the difference.
Here’s a list of 10 things that you absolutely must spend money on, followed by 10 things you definitely shouldn’t:
10 essential expenses
1. A business plan. There’s a lot of controversy regarding business plans, but in my opinion, knowing where you’re going and how you’re going to get there isn’t optional in business.
2. Market research. Never spend money on production before you know that you have customers ready to buy. Knowing what your market needs and how you can meet that need is essential for success.
3. A CFO or accountant. A good CFO or accountant can save you more money than you’ll spend on him or her by holding you accountable for spending and helping you plan your investments and understand your return on investment.
4. Buying lunch for those more important than you. An awesome life lesson from the richest man in Asia, this tip is all about networking. The cost of a single lunch is worth far more.
5. Legal advice. While unnecessary services cost you money you can’t afford, nearly all startup entrepreneurs require some level of legal advice. Whether it’s basic incorporation paperwork or understanding liability issues, pay for good advice from the start so that you aren’t stuck with the big bills of legal settlements later on.
6. Tax professionals. Doing your own taxes wastes countless hours that could be better spent on your business. Hire a tax professional, get the advice you need, and rest easy in April.
7. Customer service. It’s been said that sales without service is like putting money into a pocket with a hole in it. Customer service is an extremely profitable portion of your company, and it pays to invest in it.
8. Marketing and branding. Again, this business need can be done well and it can be done poorly. Don’t waste money unnecessarily, but do spend wisely on targeted, measurable campaigns.
9. Outsourced PR. This one is controversial as well, but keep in mind that I’m advocating tailored spending on measurable results. Your time as a founder is too valuable to spend on activities that others can handle for you in a profitable way.
10. Technical support. As a rule, the hours you’d spend doing your own website and server maintenance would be far better spent serving your customers. Hire technical support and put your time to better use elsewhere.
10 expenses to avoid
1. Expensive subscription-based services. Many times, project management software and other subscriptions have cheaper or free alternatives. Use them until you’re sure you need the features only a paid solution can provide.
2. Expensive clothes. Don’t let your ego put you out of business. It’s important to look professional, but you can do so fairly cheaply if you’re smart about how you shop.
3. A fancy office. Everyone wants a plush office, but the expenses involved in creating this business oasis can add up quickly. Focus on your business’s success first -- the office can wait.
4. Expensive equipment. Like anybody, you may want to buy the latest and greatest technology, but that doesn’t mean it’s a useful business expense. Purchase only what you truly need, and do so as economically as possible.
5. Staffing before you’re ready. It’s fun to be an employer and to watch your startup grow, but if your business isn’t ready, you’re just wasting money. Outsource first, and only bring on employees if it makes financial sense to do so.
6. Extravagant business parties or trips. Again, these expenses may be fun, but they’re not wise. This kind of spending in a young company isn’t a sign of success -- it’s a sign of wastefulness.
7. Non-measurable outreach efforts. Whether it’s PR, marketing or branding, if you can’t measure the results of your efforts, you shouldn’t spend the money. When money is tight, start by focusing your spending on things you know can build your business.
8. Buying followers, email marketing lists or other “customers.” Not only is this usually a scam, it’s not a great way to get customers. It may look good to say you have thousands of followers, but if they’re fake, you’re never going to see a return on that cost.
9. Expensive shipping or printing costs. While having a logo and some inexpensive business cards makes sense, there’s no reason for young companies to spend money on major printing or shipping expenses. Focus on meeting your customer needs first, and fancy stationery later.
10. Spending money before you’re sure you’ll make money. Unless you have some extremely generous investors in your back pocket, be especially cautious about spending significant amounts of money before you’re making enough to cover it. Just as individuals should live within their means, so should your business.
Every business is unique and will have different needs at different times, which is why having someone who will hold you accountable can be very helpful when it comes to making smart decisions. When you spend money on the things that are truly important, you position your business well for long-term success.
What do you think are the best and worst expenses for startups? Share your thoughts in the comments section below!