Expenses are the costs to your business as a consequence of money spent. Some are directly related to your products and some are not. The indirect expenses are also called overhead because there is no direct relationship between the expense and a customer benefit. Managing your expense line is the most controllable way of limiting your risks. It is wise to challenge yourself before you make every expenditure:
- Is the timing right for that expenditure? You don’t need everything on day 1. You probably couldn’t afford it anyway and it’s not a good business practice to hold huge inventories of things that aren’t being used. It’s way too expensive. Ideally, you spend money only when you need to. Go through your plan carefully and look to see where you have some timing opportunities.
- Are expenses growing faster than revenues? That’s a huge red light and must be carefully analyzed. It’s really risky to invest everything up front and wait for a big bang payoff. You might end up with a big crunch. Costs are clearly under your control and you should look for indicators that you are on track and not wasteful.
- Is it a nice to have or a need to have? If your ego is in charge you may end up with toys to play with instead of tools to build your company. Make decisions on big expenditures as a team, even if it’s only 1 other person. Encourage a fair debate and make your best choices. Don’t blow your opportunity to build your dream company because you are satisfying some other need. Scrutinize every dollar of expense and make sure you really need it.
Rigorous expense planning and management are fundamental components of successful start-ups. Click here
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