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5 spending habits you need to break as a startup if you want to succeed
Did you know that around 75% of startups will fail within their first five years? Did you also know that their spending habits tend to be the reason they fail so early on? Well, this discussion is about how you can identify those bad spending habits, change them, and avoid going belly up!
Most businesses start spending money one themselves within the first year, which is normal, but this can spiral out of control, and that's when the problems start to kill the company.
Thinking your sales will never drop and you keep spending
One thing that hurts plenty of businesses out there is when they spend money because they think it will continuously come in month after month. They will spend their profits on things they might not need, and when the sales stream dries up, they're screwed, and now they don't have anything but crap the business didn't need right away.
Think about it, how many times have you seen a startup buy pinball machines, build fancy lounges for their employees, or get stuff to decorate, and within the first five years, their business fails? You'd be surprised, but that's how a lot of companies go under. They spend money on things that aren't important, they overspend, and they constantly think the profits will keep rolling in from month to month... but it doesn't always work like that.
Impulse purchases when you're still a startup
When it comes to buying random crap for the office, the higher-ups tend to buy the ridiculous things out of impulse, and this tends to dry up any savings once things take a turn for the worse. There have been business owners who buy expensive art for their office, and in six months, they're wondering what happened to all their profits. Well, those profits are around the building you're about to get kicked out of because now you can't pay your lease lol.
It's ok to spend money on things that look nice, but you don't need a Picasso hanging on your wall if you're not making hundreds of millions each year lol. Save your money, hang a print of your favorite art piece, and get an original when you sell your company to Google or Apple down the road lol.
Not budgeting your cash flow
Improper cash flow management is another big thing that can kill a business before it starts to take off. Think about it; if you're spending erratically, then you're not sure what needs money and what doesn't. You could overspend on web design and not have enough to pay for the servers that fancy website will go on. You need to take control of your cash flow, budget everything for 6+ months down the road, and know what you can and can't spend on something. This isn't a difficult task, but you'd be amazed at how many businesses don't bother doing it.
Not worry about your past-due invoices
If you're running a subscription-based service or invoicing customers a large amount and not worried about it, you might as well quit now because you're going to fail. You're a business owner, not a best friend to your customers, and that means they need to pay you for your services or products. You need to be on top of collecting payments, or you'll be doing everything for free and eventually fail at being a business owner. If you're not the type of person who can call someone and collect a payment, you need to hire someone to do so, or you'll fail.
Not saving a cash-cushion when things get bad
You ALWAYS need a rainy day fund for when things get bad. The amount you need to save up will vary depending on the business you're running, the monthly bills you need to pay, and how much you need to live on. Figure out that amount, multiply if by 12, and that's how much you should be saving in your account in case things get bad. If you end up dipping into these funds, you will be able to float your business for 12 months, and I hope you can fix things before the money dries up.
Not having enough money or spending too much money erratically are the main ways businesses fail early on. If you can take control of your money, buy what you need, and bootstrap the rest, then you should be able to build a profitable business and keep it alive and healthy for years to come
Thanks for reading
- Tommy Carey