4 Most Common Sources of Startup Money Leaks

Every startup business has its own set of difficulties and hardships on the way to success. Most of the time, startup owners tend to get carried away when developing their business. That’s when they overlook the fact that they’re actually hurting their business instead of growing it. In an effort to grow their business, owners spend more money than they earn on things they don’t really need.

Moreover, they spend on things that won’t bring any income or profit, which ultimately leads to their downfall. It’s crucial for every startup business to plan their budget accordingly and avoid money leaks that may lead to business failure. However, in order to avoid such money pits, you need to prioritize your expenses and only spend on things that are vital to your business success. Here are a few most common startup money leaks you should be aware of.

Hiring staff too soon

Although every business needs employees at one point, it doesn’t mean you need to hire a full staff right from the start. Hiring an employee or two to help you out with everyday tasks is okay. However, hiring a full staff of employees, including managers is simply unnecessary and it’s the easiest way to drain your budget in no time.

Think of it this way, your business is in its development stage and you have no working product to sell. Therefore, you have no way of actually turning a profit or having an income. On the other hand, you have hired a full staff of employees who don’t really have anything to do, because your business hasn’t reached that milestone yet. Still, you have to pay them their respective salaries, even though they don’t or can’t do anything yet. That way, you’re only losing money because you’re paying employees that are on standby without having an income that covers the expense.

Getting an office space

Acquiring an office space is necessary for a business to function normally, but not for early stages of a startup. It’s important to realize that you can do most of the work from home and that you don’t really need an office. Even if you have a few employees, they can work from home as well. Also, you can meet with them at home or at a restaurant for lunch if you’re in need of a business meeting.

Renting an office space is completely unnecessary and it will only drain your budget further. An office space costs money. You’ll have to pay rent, utility bills and maintenance costs, which is pointless with no stable revenue or income. Sure, your business will have a central location, but that commodity may ruin your business before you know it.

Equipping your office space

If you made the mistake of getting an office space for your startup business, you’ll probably make the mistake of equipping it with furniture and other supplies. This is another senseless expense and money drain that you don’t really need. You went through all the trouble of raising the capital for your startup, which is probably not enough to get you all the way to the end and you’re about to spend a portion of it on office supplies.

Sounds foolish, doesn’t it? Even if you get an office space and you equip it with everything you think is necessary, such as furniture, computers, coffee machines, entertainment and so on, think about what you will do with it if you run out of money to pay for that office. The best you can hope for is breaking even on a garage sale, but that’s the best case scenario and those are rare.

Avoiding taxes

A lot of startup owners think that they can avoid paying taxes until they start making some real money. You may certainly think that way, but you can be sure that the government won’t share your opinion. It’s probably worse to owe money to the government, than it is to owe it to loan sharks. Sure, they won’t break your knees to get their money back, but they will break your business and everything else that comes with it, to get what you owe them.

You’ll still have to pay taxes with high-interest rates alongside additional fines for being overdue and you may even have to rely on small business loans to pay the amount in full. If you don’t have money to pay, the government will start seizing your property and your belongings until they get every last penny that you owe them. So, in an effort to save a bit of money by paying taxes only once you start having income, you may be forced to close down the shop for good.

Startup businesses are very fragile and they require a lot of attention to succeed. However, in your best efforts to make your startup a real business, you may end up hurting or even ruining it. Make sure you focus on what really matters and that’s growing your business and developing your product.

Nate Vickery

Nate Vickery is a business consultant mainly focused on streamlining SMB and startup management with latest tech trends and practices. He is also the executive editor at Bizzmark Blog.

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