Business owners, especially new ones, often try to save money. Bootstrapping is almost enchanting, and the ability to keep more capital in your bank account can become addicting. The issue is that most startups try saving money in the wrong places.
Common mistakes businesses make that actually cost them more money are:
1. Improper Registration / Licensing / Permit Filing
Local business laws can differ. You’ll need to obtain licenses for certain types of businesses, and other businesses may also need permits to operate. Even company registration can go wrong. A lot of businesses fail to:
- Search for businesses with the same name
- Search for businesses with similar names
And what happens is that your business might infringe on another business’s name. If the other business is in the same industry and was formed prior to your formation, you can face stiff legal troubles. A lawyer will allow you to avoid these costly registrations, license and permit filings.
If you start your business off improperly to save a few dollars, it might have substantial monetary consequences in the future.
2. Starting Without a Business or Marketing Plan
You should have a business plan. Before you even start your business, a business and marketing plan can help a lot. You can pay someone to come up with your plan, or you can write it yourself. The monetary loss doesn’t come from the creation process.
But if you don’t have a plan, you can lose:
- Funding money
- Loan opportunities
A business plan can be used to get loans and funding. If you don’t have a viable business plan, you’ll find that no one will invest in your company. Investors want people who are savvy, but they don’t want to lose their money.
Marketing and business plans are a must-have for all businesses.
3. Overspending and Underpricing
Two money-related mistakes that new businesses make is that they underprice and overspend. These mistakes lead to wasted opportunities and money issues. New business owners don’t understand their business operations perfectly, so they’ll:
- Lose control of their costs
- Overspend too often
- Sign personal loan agreements
And then the business owner, possibly scrambling to get their spending under control, will underprice themselves and lose money to garner more business. You need to do your homework on pricing to ensure that your business is charging enough.
You can’t expect your profits to rise quickly if you’re underpricing yourself too much. Your pricing needs to cover your overhead at a bare minimum.