“You’ve got to spend money to make money.” That saying goes all the way back to the Romans. You will almost certainly need to make some initial investments in your business. But how do you do that without committing small biz money don’ts while you’re bootstrapping your startup?
First off, what is bootstrapping? It’s starting your business on a very small budget, and building from your profits. You won’t have loans or high overhead, especially if you work from home. But you also won't have a lot of cash flow to work with, especially at first.
Bootstrapping requires bravery, thoughtfulness, hard work, and a lot of faith. Sometimes the investments and money moves you make will be a gamble. But we can help you make these calculated risks a little safer. This post contains tools so you can spot some common money mistakes to avoid as you build your baby business. If you read this article and apply the advice, your cash flow won’t be sabotaged by distractions, booby traps, or inattention.
Not only will we share some common small biz money don’ts – we’ll give you some money do’s to try instead. You can make money by carefully considering your spending priorities and budgeting with intention.
Are you ready to learn how to avoid these small business startup money mistakes? Get comfortable and read on!
Paying for convenience is a small biz money don't
There are so many tools, apps, subscriptions, courses, products, and services out there that they seem almost infinite. If you don’t have clear spending priorities, you could get sucked in to things you don’t really need – and your money could get sucked away without you even realizing it.
When you’re bootstrapping your work-from-home business, you’re probably doing pretty much everything on your own. I get it – it’s a lot, and having access to some shortcuts that make doing it all easier sounds like a solid investment.
It can be tempting to upgrade to the paid versions of web tools, apps, courses, and subscriptions for convenience (not to mention all the fancy bells and whistles). But it’s one of the small business budget mistakes that can cost you a lot. $10 for a subscription here, $20 for a service there, $30 for a course somewhere else – and you’ve spent $60 you might not have had to spare.
Ask yourself if you really need this item. If you do, is there a free version with the features you're looking for? Or is there another option that’s free or low-cost? Using budget-friendly versions as long as you can avoids one of the sneakiest small-biz money don’ts, and lets you work up to the paid version when you actually need it (by then, you’ll probably be able to afford it, too!).
If you do decide you need a subscription, course, or something with payment options, see if there is a discount for an annual membership. It might not be possible at the very beginning, but when you can, paying for a year is often less expensive than paying by the month, and can really help with your budgeting. Just be sure the product or service will be useful to you for the entire year, especially if it’s non-refundable.
Once you have a steady and growing profit margin, you can upgrade things on an as-needed basis.
One place this advice doesn’t apply is web hosting. Right from the start, make sure you have a paid, professional website. If you have the talent and the time, you can do it yourself. Otherwise, hiring someone to do it is worth budgeting for. This is the digital face your business shows to the world, after all – so keep it bright and shiny!
And speaking of shiny, here’s another one of the money mistakes to look out for when bootstrapping your business.
Letting Shiny Object Syndrome be your boss is a common mistake entrepreneurs make
“DO six things a thousand times and NOT a thousand things six times!” – Dr. Ivan Misner, founder of BNI (Business Network International).
If you wear “all the hats” in your business, you might feel like you need to learn and do All The Things – and do them all right now. This can have you chasing after an endless array of new ideas without implementing or focusing on anything long enough to see whether it’s right for you and your business.
And that's one of the reasons businesses fail.
If you never give yourself the time to see if what you’re doing works, you might miss something that just needed a little more time or a little tweak to provide great results. As far as small biz money don’ts, this means you’ve wasted time, energy, and possibly money you can’t get back.
What to do instead:
Try learning the art of iteration. Be prepared to make small changes over time rather than huge course corrections and complete changes of directions you might not need to make.
Here’s how it works.
When you decide to take on a new course or other business expense, set a point in time to evaluate its effectiveness. Put it in your calendar so you don’t forget. When the time comes, assess how well it’s working and make small changes if you need to. It’s best to only make one shift at a time, so you can continue to evaluate as you go.
Repeat this process several times before moving on to the next thing. You will save money. More importantly, you’ll be building in time and space for your actions to reveal whether they’re right for your business. And that means you can move forward with a better sense of what works, and what doesn’t, rather than adding more small-biz money don’ts to your list of things you wish you’d avoided. By not leaping at every bright shiny new thing, you give the things you try time to shine!
Falling for the “Sunken Cost” Fallacy is a small biz money don't sneak attack
Imagine you spent a lot of time and money working on a product, only to learn that no one wants it. No matter how much you promote it, it’s now clear it will never be successful.
Situations like this can lead some entrepreneurs into a dangerous mindset. They’ve invested so much in something that’s not working, they feel that giving up on it will write off all the time, money, and energy they put into it. This is one of the common money mistakes to avoid when bootstrapping your startup, because it can end up gobbling your cash flow – and your confidence.
How to fix it:
If what you’re doing isn’t working, throwing more of your limited resources at it isn’t going to fix the problem. Stop. Let this project go. Take some time to evaluate where you went wrong, and how you can do better with your next move.
Then cut your losses and move on before the misstep costs you even more. I know it’s hard, because you’ve invested so much of yourself, but businesses fail when business owners can’t course-correct.
It’s worth noting that our next small business money mistake holds a key to not making this one.
Not validating your business ideas before acting on them can make your business fail
When you’re bootstrapping and trying to avoid all the small biz money don’ts, you need to be sure that you’re budgeting your time, energy and money wisely. And that means that you need to validate your business ideas before you start.
I know – that doesn’t sound like a lot of fun. You’re so excited by your Big Idea, you can’t wait to get started. But, just like you need to learn how to drive a car before setting off on a cross-country road trip, you need to know your idea has value before investing your cash flow and yourself in it.
Here’s how to validate your Big Idea:
- Write down your goals, and ask yourself some important questions. What does your product or service offer that no one else does? Who’s it for (get specific)? How many people will want it? What do you plan to charge for it?
- Do some research. Find out how similar products or services are doing. Based on this, can you sell enough to make your Big Idea a profitable source of cash flow, or are you in danger of falling into the sunken fallacy booby trap?
You don’t have to get overly technical with your investigating. A Google search of terms related to your offering, or interviewing people who fit into your target market, could tell you a lot.
- Pre-test your Big Idea. Alpha and beta tests exist for a reason. They’re a good way to see if there’s any interest in your idea before you go all in and make it a spending priority only to find it’s a no-go for everyone else.
Ask some good friends to help you de-bug your idea in alpha testing, or maybe hire someone to run the program. You’ll get a good sense of where things need to be fixed or smoothed out. Then consider offering your product at a discounted price to a few beta-testers to see what they have to say.
If you do these steps before you finish creating your Big Idea, you’ll know if you’re on the right track or about to commit one of the small biz money don’ts that can sabotage your bootstrapping efforts.
Investing in tools or services that aren’t going to help you right now is a major small biz money don't
This is one of the easiest money mistakes for new work-from-home businesses to fall into. As I mentioned above, there are what seems to be universes of options, and the people selling them want to earn money, too. Flashy sales pages and “sense of urgency” gimmicks can be almost impossible to walk away from.
It can be so tempting to grab up those tools and services you know you’re going to need… eventually. For instance, you know you’re going to want to buy ads and put sales funnels in place at some point. But spending a lot of time and money learning about them and setting them up before you have a product to sell is not a good return on your investment.
What to do instead:
Focus on building your business one step at a time. Before you invest in something, ask yourself if you can implement it right now. If it’s something you probably won’t use or see the benefits of for months down the road or longer, put it on the back burner and revisit it when you’re ready.
If you find it hard to pass by those great deals on things you’ll need “someday,” try keeping tabs on those products. Odds are good they have frequent, or at least regular, sales. If you know their pattern, you’ll know the best time to buy when you’re ready. And it can help you see that the urgency is probably a marketing tool to separate you from your money!
If you can’t let go of wanting things your business isn’t ready for, start a running list of spending priorities. This way, when you have the cash flow and the need, you will already know the best way to invest it in your business.
Ignoring your monthly spend is another small business budget mistake
Monthly business expenses can stack up very, very quickly. As I mentioned above, those small charges and fees can lead to a big cash flow problem when you’re bootstrapping your startup. It’s easy to end up spending more than you earn.
To avoid this small biz money don’t, track every expense and investment. Comb through your spending quarterly and see if there are costs you can trim or eliminate. Be honest with yourself. Even if something seems like a great idea, it’s not serving you if you don’t use it. Remember the “sunken cost fallacy” and let it go sooner rather than later. If you find you’re ready for it in the future, you can always sign up again.
How to keep tabs on your spending:
If you’re not sure how to track and evaluate your expenses, this article from Business News Daily can help. It gives pointers on expense trackers that work with your smartphone. The list includes no-and-low cost options with descriptions so you won’t waste time (another valuable commodity when you’re bootstrapping) trying to figure out which one is for you. It also has tips on what to look for in an expense tracker.
Try one or a few of them out. Don’t worry if it doesn’t feel easy or natural at first. Like most things, practice will make you better at keeping track of what you spend where. You’ll also gain skill in deciding which expenses are worth your money.
Small biz money don'ts: conclusion
We’ve covered six different small business startup money mistakes to avoid. If you want to make money with your business, you need to develop good budgeting practices, prioritize spending to maximize cash flow, let go of what isn’t working so you can develop something that will, and stay away from the small biz money don’ts that make businesses fail.
If your spending priorities include online training, and you want to be sure you’re spending wisely, we have a couple of resources that can help. Our Online Course Checklist can help you determine if a course you’re interested in is a good investment for you, so you aren’t using up your cash flow on something that won’t give you a solid return on your investment.
And if you want extra assurance, try these free mini-courses from legitimate work-at-home course creators. They give you a taste of a career or a longer course, and all you need to do is share your email address. Explore one or more risk-free. That will definitely help your budgeting!
Can you think of any small biz money don’ts we missed? Is there one that’s caught you in the past? Did you find this article helpful? We’d love to hear about your experiences and impressions!