Five ways entrepreneurs waste money – and how to plug the holes
You've got a growing business, but it won't grow forever if your money slips through your fingers. Here are five ways that small and medium businesses often waste money, and how you can avoid it.
Underestimating project costs
Too many projects follow the 90/90 rule: The first 90 percent of the job costs 90 percent of the budget; the remaining 10 percent of the job uses an additional 90 percent of the budget.
To avoid massive budget overages, learn to estimate accurately. Talk to other people who have worked on similar projects to find out what pitfalls can be avoided, and which need to be budgeted for before they can't be avoided.
An office is a place of work, not an extension of the owner's ego. If you're not expecting clients to drop in, you don't need expensive art or tropical fish. And when you do meet with clients, you can often make it happen outside the office. They might even appreciate you coming to them!
Or maybe you don't even need an office. If everyone can do their work at home, you can cut rent from the budget entirely. As David Bunting explained last month, videoconferencing, cloud storage, and other technologies have made the physical office obsolete for a lot of businesses.
Outsourcing service and support
It seems like a simple idea: let another company handle your customer service and technical support, and that's one less thing to worry about. You don't even have to pay the employees.
But you are paying the employees. You're also paying their bosses. And their bosses’ overhead. And you could be giving inferior support.
Since an outsourced support staff isn't part of your team, they'll likely be less familiar with your product and less motivated to go above and beyond to make your customers happy. This is one area where it might be better to do the job in-house.
Offering in-house service doesn’t necessarily mean you have to build a helpdesk system from scratch. Your IT leader can easily configure ready-made support software, such asLogMeIn Rescue, to match your company's needs, minimizing the up-front investment.
Unnecessary or extravagant business trips
As a small business owner, you probably fly coach and look for bargains. But you may still be spending more on travel than you need.
First of all, ask yourself if this trip is really necessary. Can you handle the business without physical contact? Between chat and videoconferencing, chances are you can.
And if you really have to travel, do everything you can to keep costs down. Take public transportation. Invest in reliable mobile hardware so you can stay productive and connected at all times. And remember, expensive hotels usually charge more for Wi-Fi; cheap ones don't.
Hiring the wrong people
A lazy, incompetent, or unpleasant employee can cost you a lot of money. At a small company, it could cost you everything. Not only are you getting less productivity out of them than you need, but you're putting unneeded pressure on good employees who have to carry extra weight.
Don't rush into hiring anyone. Interview carefully. You want more than someone with the right skills. Look for someone who's enthusiastic, even passionate, about your product. Make sure you can trust their references; or better yet, go with people recommended by others you trust. Catherine Clifford compiled an excellent list of hiring rules from various entrepreneurs.
You have to spend money to make money. But if you spend too much, your company may not be around to make anything.