Watch Your Spending as a New Business: Startup Cash Tips

Part 12 of Acey Gaspard’s Guide to Starting a Small Business – Made Simple

This guide is for anyone in the early stages of starting a business. It covers why overspending — not underspending — sinks so many startups, and how to protect your cash so your business has time to succeed.

Jerry’s Story

Jerry was in the startup phase of his very own business. He went all out and set up an office many business owners would only dream of. He had a top-of-the-line computer system and a desk fit for a Fortune 500 CEO. The money Jerry spent on advertising and getting ready for the grand opening was enormous.

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Everything was looking perfect for him, and he was on cloud nine planning, organizing, and getting ready to live his dream. Unfortunately, that day never came.

You see, Jerry purchased so much of “only the best” before the appropriate time that he didn’t have enough cash left to run the business and no means of borrowing additional funds. Jerry was forced to shut down before even opening his doors to the public. He only got a small taste of his dream. Will this happen to you?

Go Easy During the Startup Phase

Starting a business involves many issues, and you don’t see a lot of them until you’re faced with them. Some costs can be put off until a better time. Some expenses you won’t be able to put off at all.

Here’s One Way to Look at Starting a Business:

When a business is in the startup stages, it keeps going until it runs out of money to operate. So the more money you have, the longer you have to succeed and build stability.

The quicker you go through cash, the more the pressure is on. With more pressure comes more mistakes, and the mistakes get more dangerous.

Make life easy, and go easy on the cash. If you purchase everything you want in the startup phase of your business, remember that you may not own it for very long.

Another Good Reason to Wait

During the startup phase, you’re aware of where your money is going and make your purchases with only the price in mind (“How much can I get with the money I have?”) rather than the best solution. When your business is more stable, you tend to look toward the best solution instead of just what you can afford.

You Can Cut Costs to a Bare Minimum, but Only Where Applicable

For example, if you’ve opened a new hairdressing salon, you may cut down on the cost of computers and office furniture, but it would be a huge mistake to cut down on the chairs, hairdryers, or utensils used for the clients. That’s not cutting your expenses — it’s reducing your chance to succeed. You must appear to be top-of-the-line when it comes to items your customers use or see. Customers need to feel at ease doing business with you, and like they’re getting the best service available.

It’s easy to get moving at full speed and purchase nice furniture, top-of-the-line equipment, a beautiful office, and more.

I’ve done it. I’m the type who likes everything to be top-notch from the beginning. But you know what? It’s not worth it.

It’s too much of a headache. It’s better to put money where it counts, and luxury isn’t one of them. The better stuff can wait. If you feel the urge to buy something nice, put that money toward keeping your business stable instead.

Key Points and Facts About Watching Your Spending as a New Business

Why Cash Discipline Matters

A U.S. Bank study, widely cited by the SBA, SCORE, and QuickBooks, found that 82% of small business failures are linked to cash flow problems — not a lack of profit or a bad idea.
Spending money is easy, and moderation is essential when you’re setting up your own business.
Don’t spend on items or areas that don’t directly affect clients.
Spending on the best and most expensive items early takes cash out of your business’s operating budget.

Action Steps for Watching Your Spending as a New Business

Prioritize Your Spending

Make a list of “wants” and “needs” for your business.
Rank the items on your “needs” list first, so your money goes to what keeps the business running.

Watch These Common Overspending Categories

Office space or a location bigger than you need right now.
Hiring more staff than the business can support yet.
Equipment or technology that outpaces your current stage.
Heavy marketing spending before you’ve found what works.

Checklist for Watching Your Spending as a New Business

Separate wants from needs.
- List every planned purchase.
- Mark each one “want” or “need.”
Fund the needs first.
- Pay for anything that keeps the doors open or affects the customer experience.
- Delay anything else until cash flow is steady.
Protect your operating cash.
- Keep enough cash on hand to run the business, not just open it.
- Avoid spending that leaves no cushion for slow months.
Use a startup costs worksheet.
- Write down expected expenses and assets before you spend.
- Compare the total to what you actually have on hand.

FAQ: Watching Your Spending as a New Business

Why do so many new businesses fail from overspending instead of a bad idea?

A U.S. Bank study found that 82% of small business failures trace back to cash flow problems. Many of these businesses were profitable on paper — they just ran out of usable cash.

What should I spend money on first when starting a business?

Prioritize anything your customers directly see or use. Everything else can usually wait.

Is it ever okay to buy top-of-the-line equipment early?

Only if it directly affects the customer experience, like a salon chair or a piece of equipment clients interact with. Back-office upgrades can wait until cash flow is steady.

How do I know if I’m spending too much during startup?

If a purchase doesn’t keep the business running or affect the customer experience, and it would strain your cash if things slow down, it’s a sign to wait.

References

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