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Are you thinking of starting a business, or are you a new business owner?Do you find yourself spending a lot of money trying to get your business off the ground? Would you like to set your business up for financial success?
When starting a business, it’s easy to get distracted and splurge on things you don’t need right away.That’s why it’s a good idea to avoid shiny object syndrome, and focus only on the things that you need to get your business up and running (think basics).
How do you know what to invest in when starting out? Which tools and resources are essential for you to start your business? This is the focus of this post. This is the third post in the Freedom Through Business series. If you missed the first two posts, you can find them here and here.
So let’s dive in.
How to keep spending low when starting a business
With so many voices and businesses clamoring for your attention, you can find yourself buying courses, products, coaching services and other things you don’t need to launch your business. It’s important to keep your expenses low when starting out so you don’t run out of money, or use up your budget for non-essentials.
Want a handy checklist to help you plan your business finances? Click the image below.
So how do you keep spending down when starting a business?
The first thing you need to do is figure out your business essentials.Everything else goes into the “when I can afford it, or when I start making a profit.” folder Many people will try to convince you that you absolutely need the course,tool or gadget that they are selling, but if you spend some time to think about and list your business essentials, then it would be easy to resist the temptation to splurge or blow your budget on things you don’t need. For example if you want to start an online jewelry store you’d need a payment gateway and a website to showcase your products, or you could start an Etsy shop. Those are some of your business essentials.
Make a list of your start-up costs after you figure out the tools and resources you need to start your business. List your fixed costs, recurring costs, and variable costs. Fixed costs can include things like web hosting fees, email service provider fees, etc.
Create a budget for your business and stick to it.Track your expenses and spending so you know where your money is going. It’s important to spend money wisely when starting a business.
Spend more time than money at the beginning. Try to DIY as much as you can. It’s easy to set up a website or blog on WordPress. All you need is a good theme that you can customize (I like the Genesis framework and child themes from Studio Press). There are lots of tutorials online on how to set up a blog on WordPress. A lot of people use and recommend Squarespace. That’s another option to consider if you need to build a website.
Those are just a few ways you can keep your spending low when starting out. The next question is to figure out what you should spend money on.
What to spend money on when starting a business
After you figure out the tools and resources you need to start your business,the next step is to assess your skills, strengths and weaknesses. Perhaps, you need a quick training on how to use a particular tool or software for your business. Assessing your skills will help you figure out if you need extra training to improve a particular skill,or any weak areas you need to work on to build a successful business.
The questions below can help you with this process:
- Do I need extra training in a particular area?
- Do I need to improve a particular skill?
- Is there something I need to learn before I can launch my business?
- What do I need help with?
- What’s the one thing I need that will help me get my business off the ground quickly?
- What do I need to start selling and generating revenue immediately?
Once you figure out what you need, then you’d be clear on what (if any) training or courses you have to spend money on. What you need will depend on the type of business you are starting. A service-based business will have different needs from a product-based business.
You must resist the temptation to buy things you don’t need because someone recommended them or the big-name players in your industry uses that particular tool or software. For example, if you’re just getting started building your email list, you can sign up with MailChimp for free instead of Convertkit.
As soon as your business starts making profit or generating revenue you can increase your budget and splurge on more tools and resources to help you grow. Just do enough at the beginning to look professional for your customers.
Just to clarify. I’m a big advocate of investing in yourself, self-education and lifelong learning. If there’s a resource, book, or course that you think you need to help you get started, then you should buy it. It’s better to save time getting all the information you need in one place, instead of spending hours researching and sifting through a ton of free resources. Sometimes trying to figure things out on your own can be a huge time suck. Sometimes it’s cheaper to invest in a tool or resource to save time.
If you’re thinking of buying a course, you may find this post how not to waste money on blogging courses helpful. The tips in this post also applies to non-blogging courses, so check it out.
Everyday, I see questions like: “Should I pay someone to design my website?” “Should I rent an office?” If you’re just starting out, there are certain things I don’t recommend you spend money on.
5 things not to spend money on when starting a business:
- A fancy, designer website
- Rental office or warehouse (drop-shipping may be a cheaper alternative).
- Hiring staff (unless it’s necessary).
- A big branding budget
- Online courses/coaching/business mentors you don’t need at this stage of your business.
There are exceptions to this list. If you’re starting a brick and mortar business, you need a business location, a shop, or an office space if you are a service-based business. But there are alternatives if you can’t afford an office or a shop. There are lots of co-working spaces in most cities. You could share an office, or rent a space in a shop etc. You just need to think outside the box if you need to save money, or if you’re working with a limited budget.
Finally, let’s look at some steps you can take to set you up for success before you start your business.
Steps you can take to set you up for financial success
Every year many businesses fail because they lack funding and other resources to keep their business running. They simply run out of cash.While being optimistic is a good thing when starting a business, it’s more important to have a financial plan for your business. If you are thinking of starting a business, here are some things you can do to help you move forward with your goal:
1. Minimize or get rid of debt. This would free up more money for you to invest in your business.
2. Reduce expenses. Get rid of stuff or subscriptions you don’t need or use.
3. Create a budget and track your spending. It’s important to know where your money is going so you can reduce waste and unnecessary spending. A budget will also show you how much you can afford to spend, and how long you can run your business before it becomes profitable.
4. Create personal and business emergency funds. You need a business emergency fund to deal with financial problems when they occur.
5. Know the sources of funding for your business e.g personal savings, loans from family and friends, business loans etc. Have a short-term and long-term strategy for funding your business. When you know your sources of funding, then you can figure out how long you can run your business without running out of money or going into debt.
6. Choose an accountant or accounting software (e.g Quickbooks) to help you track and manage your finances.
7. Open a separate business bank account. LLCs and Corporations are legally required to have separate bank accounts. As a sole proprietor, it’s good practice to keep your personal funds separate from your business funds though it’s not a legal requirement. One benefit of keeping separate bank accounts is so you don’t forget to claim a business expense on your tax return. It also helps with accurate record keeping of your business finances.
8. Learn and practice good money management skills.
9. Know the difference between profit and revenue, and other important financial terms every business owner should know.
This isn’t a comprehensive list by any means, but I hope it helps you prepare financially for starting a business. There are lots of ways you can save money when starting a business. If you need some more ideas, you may find the posts below helpful (depends on the type of business you’re starting):
To recap, bootstrap and DIY as much as you can when you’re first starting out. Resist the temptation to splurge/invest in courses,coaching,tools and other products you probably don’t need right away. Start small and stair-step your way.Consider investing more time than money initially especially if you’re on a tight budget. Fund your business with your earnings. Figure out your business essentials; that’s the tools that are necessary for you to launch your business. You can spend money on other stuff once you start making money.
Don’t forget to grab my Business Financial Plan checklist to help you plan your finances. Click the image below to grab the checklist!
Did I leave anything out? What steps did you take before you started your business?
What did you spend money on that you wish you hadn’t?
If you want to become financially literate, get out of debt, or improve your money management skills, check out some of my favorite personal finance books below. Please note, the links are affiliate links.
Other posts in this series: