5 Expenses That Nearly Every Startup Overpays For

Posted On 05/10/2019 by St. Pete Chamber Member

Starting your own business is like a really expensive roller coaster ride. No matter how prepared you think you are, there are so many unexpected costs — so many twists and turns that you’re just not going to be ready for.

That’s a big reason that half of new businesses fail within five years, according to the Small Business Administration.

At the Penny Hoarder, we’re known as experts on saving money, but we’ve fallen for some for the same expense traps as everyone else.

Here are a few things that might not be worth your money early on in your business:

Phones: Do startups even need a phone anymore? Our office has a front desk phone that rings maybe five times a day, and all five are sales calls. “No thank you; we’re all set for IT services right now.”

A basic business phone line will run you about $75 per month, or $900 per year. In our first office, we put a phone line in every conference room only to watch them get used once a day. Our team members preferred to use their cell phones or free video conferencing like Google Hangouts.

If you really need a phone number, consider an alternative like Google Voice, where you can get a business phone number forwarded to your cell phone.

Software: The second you file for a business registration, you’ll be deluged with vendors lining up to show you shiny, pretty business software. It all looks so cool and crisp and useful!

In the early days of our company, we used the free options — Google Docs, Sheets, Analytics and Hangouts. As we got bigger, we slipped up and started paying for way too much software. Now we have subscriptions with something like 60 software vendors, but adding more bells and whistles didn’t make us move any faster. So we’re paring down.

Also, software typically comes with a one- to three-year contract, and I can guarantee the business you’re building today looks nothing like the business you’re going to have in six months. Stick with the free stuff for now, even if it’s not the top-of-the-line model.

Rent: One word — wallpaper.

Resist the temptation to drop a bundle on rent. Everyone wants a good-looking office, but that’s exactly the kind of fixed expense you shouldn’t commit to when you’re starting out.

For our first office, we leased inexpensive space in the 600 block of Central Avenue and brightened it up with inexpensive wallpaper, secondhand furniture and stuff I bought online from Ikea. People think wallpapering is something that no one does anymore. But it’s so cheap, and it makes your workspace look colorful and fancy — even if it’s not.

Sure, we’ve upgraded offices since, but we still cut corners by buying old rugs on eBay and turning expired coupons into an art installation.

Equipment: In the beginning, nearly every employee at our startup used their own laptop, and in return we gave them a stipend every month. Because buying computers is expensive. It’s best to avoid paying that one-time, up-front expense when your cash flow is tight.

Social media followers: Another lesson I learned the hard way! Five years ago, I bought 25,000 followers on Facebook — and then I never saw them again.

It’s not a good use of your money to build an audience on someone else’s platform, because you’re just one algorithm change away from no longer being able to reach them.

Sure, social media can be a useful tool. But focus on building an audience that you own, whether it’s a phone list, email list, online forum or community meetups.

When you’re building a business, there are so many unexpected costs. So many obstacles, so many trapdoors. So many gut punches that you’re just not going to be ready for. So do yourself a favor and avoid these expenses.

by : Kyle Taylor, CEO at The Penny Hoarder