9 Ways Startups Are Wasting Their Valuable Money

Have you ever wondered why so many start-ups fail? Well, not all of them, but a majority of them spend more money than their revenue generation.

What’s worse is that they are not able to raise the capital and are running out of funds. Regardless of what type of venture you start, these are the two essential metrics to keep eye on – availability of cash and monthly expenditure rate.

If your start-up is about to run out of money in a few months, then hard times are coming. This might not be good for the investors because they invested in your start-up after you convinced them that your newly-built company will succeed.

So, how would you return the money of the investors? If you don’t return, there can be legal complications. Also, if you get past these legal complications, no one will ever invest their capital in your business again.

To avoid these difficult circumstances, you should keep a check on the expenditure rate of the company. Avoid wasting money as other start-ups do. Here’s how many startups are wasting money:

1. Renting Expensive Offices

Office spaces are expensive depending on the location of the business. Their prices per employee range from $1,300 to $12,000 annually.

If you own a start-up that can be run without owning an office, then that might be a smart financial move. Also, there other proven benefits when employees work remotely.

Also, due to the COVID-19 pandemic, it is recommended to work from home. So, why not let your employees work remotely and in the meantime you save money.

You can invest the money saved by not renting an office in your business. It will help you to grow revenue.

2. Giving Fancy Perks to Employees

One of the biggest mistakes that startups make is – spending way more to attract new employees. New ventures cannot and should not provide major perks or compensations to their employees.

Everything should be within a limit. Do not attract employees with money or other perks. Hire those employees who believe in the mission of your company. Recruit those employees who have the willingness to make your start-up successful.

3. Premature Hiring

Startups often make mistakes of unnecessary hiring or hiring of underutilized employees. They do this to hire revenue-generating employees such as in sales and marketing.

However, hiring a full-time employee comes with costs. It costs around 1.20x to 1.4x of the salary of an employee to hire. If you hire more quickly, then it will cost you more money. That’s why it is essential to be cost-effective and not hire employees aggressively.

4. Non-Measurable Strategy of Marketing

While starting a new venture, acquiring customers is essential. It often poses a huge challenge and makes it an uphill task for you to define your services or products in the market.

To find the solution, business owners try marketing. However, the marketing process they opt for is non-measurable. They tend to spend more money on marketing strategies regardless of the conversions or sales.

That’s why it is wise to pursue a marketing strategy that is measurable and has the capability to produce results. Make sure that you executing your plans successfully. Otherwise, your money will be wasted in the process of acquiring customers.

A measurable marketing strategy helps in limiting resources and provides a business with a baseline for improvement.

The marketing data of your initial campaigns will help in analyzing the things that didn’t work and that worked. It will help you in increasing the brand awareness of your venture among potential customers.

5. Under-QualifiedEmployees

Hiring underqualified is one of the biggest mistakes that startups do. They often recruit those employees who are not fit for their venture. Rapidly growing companies do not make this mistake. They do not hire candidates who are underqualified.

If you hire an underqualified candidate, then he/she may not work well. It will take time for them to learn what the demand of the job is or how to get the job done. It alone can cost you a lot of time and money.

That’s why it is essential to be cautious while hiring. Try hiring qualified but fewer candidates instead of hiring too many unqualified candidates. Always remember that quality is better than quantity.

6. Lavish Celebrations 

You must have witnessed the early success of some startups. Yes, they do prosper, but they still make a huge mistake. To celebrate their early victory, they start throwing lavish parties.

No startup should do that. Instead of doing that, save money for the future. We are not saying that never celebrate.

You should celebrate, but when your company gets to a solid level. Celebrate when your business has a stronghold in the market.

7. Business Expenses

Never overlook extra business expenses. As a startup, you must keep a check on money spent on entertainment, meals, traveling, etc.

Your company must have a clear reimbursement and business expenses policy. It will help in paying dividends.

Also, the employees will understand this policy, and your business will be in full control of the expenses.

8. Reactive Tax Planning

Reactive tax planning for startups can hurt. Instead of that, you must opt for a proactive approach to tax planning.

Also, if your accountant is ineffective and doesn’t understand the goal of your business, then it’s better to part ways.

Partner with a reliable and reputable CPA firm. CPA firms are specialized in understanding various business industries.

Also, they offer a proactive approach to tax planning. You don’t know when taxes can surprise you. So, it’s better to hire a CPA.

9. Cheap Business Solutions

Most of the time, new business owners look for cheap and short-term business solutions. Be it business equipment or cheap real estate (regardless of its location) – they want to save money.

However, they don’t know that saving money now will not help them in getting hands-on a better solution in the future.

Entrepreneurs should never save money at cost of getting better business solutions. Even if it costs a little more, go for quality rather than saving money.

Quality business solutions may cost you a little, but they also prove to long-term and revenue-generating.