Spending Business Capital
Written by Rodney Miller for Gaebler Ventures
It is important to consider when and where to spend your capital. This is discussed as well as some suggestions on when and where you will need to spend.
An important aspect of opening a business in this uncertain financial time is the decision of where and when to spend the funds you have worked so hard to raise.
If you are now considering this aspect you no doubt have spent countless hours tweaking your business plan and presenting it to all types of investors. I understand the effort it took to raise this money and that is why I suggest not to be too hasty in spending it.
The temptation is there when getting ready for a grand opening or starting to purchase equipment to overspend or even to purchase completely unnecessary items.
In one of my own businesses, for example, I wanted to hire some professional motocross demonstrators to perform, thinking that would attract people in to my business. I am still sure it would have raised awareness of our new business, but I am glad my wife talked me out of it by pointing out that it would most likely only attract spectators and not customers.
This is an example of what a new entrepreneur, flush with cash, might decide to spend your money on. Instead, in our case, we spent much less money on direct mailings and had great success. The key takeaway is to not spend money impulsively. Think about what expenditures will give you the biggest bang for the buck.
One other important part of spending I want to discuss is when to spend. If you can hold off in buying non essential items right away, it could be the difference in getting through a slow month and not making it. What do I mean by this?
For my tanning salon business, we had the opportunity to purchase a tanning system at an excellent price, mainly because we had already purchased eight units from the company. We passed on the opportunity, deciding the expenditure was non essential. The amount of money we saved on that item helped us to float a much larger opening discount on products that got a lot more customer traffic in the door. We later were able to buy this same system used for about half of the price. It became a winning situation for us all around.
While I realize that not all decisions will be as beneficial as these two scenarios were for us, I hope that it helps create some awareness on how spending decisions can impact business success...or business failure.
I would rather do without some unimportant aspect, especially if it does not increase sales than have to borrow additional funds and pay interest later in the business process.
Weigh your spending decisions carefully. You may only get one chance to start this business and you don't want to be underfunded due to irrational spending.
Rodney Miller is an experienced entrepreneur who likes to write about entrepreneurship. He has started numerous businesses, including a tanning salon and a landscaping company. Rodney is currently studying business management at Park University.
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