Even the most successful business owner can run into financial problems.
There is a myriad of reasons that can contribute to a business owner’s demise, but they usually start with bad spending habits.
If you develop bad spending habits, your business is not the only thing in your life that could be hurt. This could spread into your personal affairs as you may start dipping into your personal finances to cover your business.
So, before you believe that your business habits are controllable, understand that the slippery slope can lead to a monumental disaster if left unchecked.
Here, we’ll over some of the worst spending habits that can hurt your business. Specifically, we’ll share 10 of the worst decisions business owners often make that can land the in the worst predicaments.
1. Impulse buys
Often, the financial decisions we make in our personal affairs are the same as those that can destroy the business. One of those is the lack of self-discipline.
We’ve all been there at some point. We make a purchase knowing full well the impulse buy is a bad idea. For whatever reason, that buy looks right at the time.
Either we think we can make up for the expense by juggling some things around financially, or we think the purchase won’t hurt our finances that much.
No matter, the lack of self-discipline can be one of the most destructive spending habits to develop.
To avoid this, take some time to think on the purchase. Go over it with someone you trust. Make it a habit to think purchases through, especially if they are large.
2. Advertising to the extreme
The first thing to understand before you even set out to advertise and market your business is that they are different.
Chron.com summed it up like this:
“While marketing is the way in which you convince potential buyers that you have the right product for them, advertising is how you communicate to them the existence of that product.”
Now with that out of the way, let’s address the bad spending habits that specifically relate to advertising. That is placing ads.
In the early days of a business, every publisher out there is going to seem to be asking you to advertise with them. From newspapers to radio and TV, you are bound to be offered what they say are the best deals for you. Remember, these are sales people so they can be quite persuasive.
I recall a business owner who said he was being peddled excessively by the Yellow Pages, or what is call now YP. Hardly anyone uses the yellow pages anymore, but the salesperson was relentless about how it could help his business. He recognized signing up would be a mistake, and did not do it.
While you will need some advertising, resist the temptation of advertising because you think it’s the only way to boost your sales. There are other steps you can take that can be just as effective, and won’t cause the large costs of running ads constantly.
The costs may not reap the rewards. It’s been said that many business owners eventually don’t see the results, such as more customers, through heavy ad spends.
3. Marketing overspend
Another bad habit is overspending on marketing. This is a broad process that can include public relations, branding, etc. You may launch a campaign that didn’t bring them through the door like you thought, but don’t develop the habit of constantly launching new campaigns.
It’s like advertising, in that the money you’re spending may not cause you to see the returns in added profits.
[Learn the 7 Marketing Mistakes You Need to Avoid]
Kill two birds with one stone by using Facebook and Google AdWords. These targeted marketing campaigns can help you increase your customer base without the huge advertising costs.
4. Impressing clients
If you’re in a business where you don’t sell anything tangible, such as consultancy, you may believe you must spend heavily to land clients.
However, lavish dinners and even deep discounts on your offerings should not be a habit. Instead of meeting with them for dinner, go to a coffee shop.
Also, as much as you can, steer clear of paying for conferences and seminars. Many times, these include meet-and-greets, but they can zap your budget.
If your work is solid, use these opportunities sparingly, and let the word be spread. However, avoid going to everyone that pops up.
5. Deep discounts
I had a hair stylist who was just starting out. She offered me 25% off, and I went. She was great. I told others, and to my surprise, she wasn’t offering the same deal. As it turned out, her customer base had grown so that new clients received nothing…but a spot on the wait list!
She didn’t develop the habit of offering that discount to new customers forever. You shouldn’t either.
Also, if you are selling merchandise, avoid deeply discounting it on a regular basis. It may be something about that product that customers don’t like, and you may need to remove it from your line.
If they like your product or service, they should be willing to pay full price. Unfortunately, many think that they could lose a customer if they don’t offer the “freebies.” But remember, these are your hard-earned dollars, and you don’t want your profits to be cut by giving away your goods.
6. Do you really need all that space?
The adage of bigger is better can often influence business owners when they are choosing a place for their business. Be diligent about choosing this space.
Your business is not called small for nothing. Understand how space is leased, too. It usually is by square footage.
[Top 7 Deadly Accounting Mistakes Made by Small Business Owners]
Not doing your research when you set up your business, or expand it, could put you in a pinch. Closely assessing the space you need, and can afford, is wise.
7. Credit cards
Just like consumers must do in managing credit cards, business owners should too, and that includes signing up for too many cards. Even better, try to avoid credit cards all together.
If that’s not possible, pay them off at the end of the month. Don’t get in the habit of carrying a balance.
Also, don’t just jump at the first offer that comes in the mail. Often these offers are packed with terms that make them not good. For example, they can come with introductory rates that span only three months. Carefully review the documents before deciding which to choose.
Not taking the time to find out about the card’s fees and interest
8. Wearing two hats
For many small business owners, it’s difficult to separate their personal lives from their small business lives.
Don’t get in the habit of doing your household chores, or running household errands when you should be at work. At MatthewKimberly.com, it is succinctly stated:
“If you’re self-employed, you’re not billing your clients if you’re doing the dishes, ironing your pants or taking out the trash. Unless that is your job, of course. Additionally, you’re not going to be at the top of your game if you come home to heap of domestic chores that need doing every single night.”
Consider hiring someone, or delegating these chores to other family members.
9. Being the boss, the secretary, the janitor…
When you go into business for yourself, you may be tempted to think you have to do everything yourself. Don’t make this a habit. This time you should loosen up the purse strings and hire others to take on some of the responsibilities.
A business owner gave the example of building her website on her own to save money. She spent weeks trying to build it, and eventually had to hire a professional.
This was time she wasted on her business, when she could have just hired a professional from the beginning.
10. Know when it’s time to diversify
Recognize when your profits are growing beyond your projections; it may be time to diversify. Don’t get in the habit of saying, “not yet, something may happen.”
“Spend money on necessary things of new business and bootstrap in your next business like you did in your first. Don’t sit tight if the boat is moving up with the wave. Build independent not interrelated business baskets to spread risk in different areas.”
Most of these bad spending habits are common sense ones. However, like many things, they are easy to way.
However, with each purchase you make, just remember, your entire livelihood is lying on it.
Author: Tedra Williams DeSue
Tedra has been a finance/investment writer for more than 20 years. Her areas of expertise range from dividend growth stocks to municipal and corporate bonds. She also writes about personal finance and small business issues. Her work as a finance writer has been published in The Bond Buyer, Forbes, The Street, Yahoo Finance, Insider Monkey and NBC News.