The 5 Worst Ways to Spend Startup Money

The road to entrepreneurship offers plenty of opportunities to waste money. Unless your rich uncle is bankrolling your entire startup without concern for what and how you spend, you need to keep your expenditures under control. The top five ways that entrepreneurs waste money, but shouldn’t, are:

Startup Squander #5 - Franchise or MLM Fees

Don’t bother with these business models. Franchises, even the best ones, are too expensive for what you get, and MLMs are just a bad idea. The money you put out for either only provides you pieces of the operations side…you are still at square one as far as your overall startup. Your franchise and MLM fees buy only the operations ideas or access to brand products, you still must complete all your own planning, fund all equipment, location, staff, etc., and figure out how to get the product sold. You are far better off coming up with your own business idea, learning what you need to know, and actually working for yourself. And anyway, why share your profits with your franchisor or upline? You are doing the work, you should reap the rewards.

Franchise fees range from a few thousand dollars to tens of thousands, plus a cut of your profits through the life of the business. MLM buy-ins range from a few hundred to several thousand dollars.

Startup Squander #4 - Grant Seekers and Consultants

There are very few, if any, government direct grants for domestic startups. There are no secret grants, and there are no tricks to applying for grants if your business idea does happen to qualify for one. The Federal government does earmark millions each year for small business, but the majority is distributed through SBA programs which are used to guarantee bank loans or provide short-term working capital to existing businesses. Some money ends up with local economic development NFPs who may provide training or microloans to first-time entrepreneurs. If you qualify for any help through these NFPs, their staff will help you through the process for free.

Grant consultants charge a wide range of fees, but most are in the thousands.

Startup Squander #3 - Entity Registration Service

If you have a straightforward situation, you can easily do it yourself. If you don’t, you need an attorney. Paying for these services make no sense – if you understand enough to fill out their questionnaires about how you want your LLC or Corporation set up, you can just as easily set it up yourself. Most Secretary of State websites now provide a simple online form to fill out with clear explanations for each section. Templates for the Articles of Organization and Owners’ Agreement are easy to find, and writing them yourself means you will know exactly what you are agreeing to. Even if you have your attorney review them, it will be cheaper than the average service. The hardest part is deciding whether an LLC or Corporation is the better choice for you…and nobody but you should be making that decision. If you have complicated issues involved in your organization or have specific concerns about partnerships or assets, or you are planning an IPO, work with a competent attorney in your state.

The entity registration services available charge fees from one to several hundred dollars, plus your state’s entity registration fee.

Startup Squander #2 - Startup Consultants

Startup consultants are available to do everything from naming your business to writing your business plan. Some newer breeds offer services to walk you through the startup process, charging $150 to tell you the next three things to do for your startup. Even the most basic startups require over 100 steps, so the fees add up very quickly. As for the specific service consultants (name your business, conduct market research, write your business plan) - It’s your startup, so why would you leave critical basics to somebody else? You will be running the business, so it only makes sense that doing most of the preparation work yourself will greatly increase your odds of success.

Startup consultant fees can range from hundreds to thousands of dollars, depending in the service.

Startup Squander #1 – Perks

Some first-time entrepreneurs are under the delusion that simply becoming a business owner means you drive BMWs, frequent expensive restaurants for every meal, and take exotic vacations at will. The reality is that although entrepreneurship is just about the only way to achieve that lifestyle, it doesn’t happen overnight. For all new businesses, the first goal is Ramen-profitability – making enough money to keep yourself and your family in Ramen noodles. Plugging most of the profits back in to building the business is the only way to become rich. Spending your limited startup cash on frivolous luxuries is a sure route to failure. Watch the pennies during startup and the early stages, and the dollars will appear.

It is common for entrepreneurs to blow through their entire startup budget on basic perks – eating out, overspending on gadgets, and improving their personal “image” with clothes, cars, and accessories.

Conclusion

Be conscientious about how you spend your startup capital – stick with only those things that are absolutely necessary to get you to the next step. Anything that will make your startup faster, better or stronger can be good, as long as the benefit is worth the cost.