Are You Too Flash For Your Business?
October 1, 2009
Some folk say that buying expensive toys will make you feel successful, so you’ll wind up being successful. And it’s a load of shit.
Yes, the idea has worked for folk like Donald Trump. But he already knew how to make millions, when he persuaded the banks to let him keep his flash lifestyle, while he got out of the financial toilet. I’m betting you’re not in the same position and the bank isn’t willing to sub your jetsetting ways, in the hope of recovering the millions you owe them.
In the Mail on Sunday – Simon Cowell, of X Factor fame, gave a brutally honest description of his slavery to eighties excess. His lavish spending led to him losing his business and with no income to pay his £500,000 debts, he had to move back in with his parents.
Simon quickly realised that it feels better to be poor and owe nothing, than live like a rock star and have mega debts . And since he went bust, he’s never taken out a mortgage, or car loan – he pays cash for everything instead. Of course, he now has plenty of money to pay for whatever he wants and that’s because he learned from his mistakes.
1) In the early days of your small business (read the first two or three years) avoid spending on stuff that won’t contribute to the growth of your business. That includes cars, boats, cocaine, a bigger house and any other personal extravagences.
2) Don’t waste your spare cash on the same money sucking items – your business might need that cash someday soon and chances are you won’t be able to liquidate any assets, or liabilities fast enough.
3) You don’t need to rent expensive office space – impressive looks don’t pay the bills. I always rented a small, cheap office with flexible terms. Folk tried to persuade me into getting a bigger, flasher place for four times the rent. And I’ve never regretted not signing that 3 year lease. And working from home is cheaper still.
4) Expensive office equipment won’t make you work harder and unless it prints money, it won’t make more cash for your small business. Check out Ebay and Craig’s list – you’ll probably be able to pick up most things you need for next to nothing. And be frugal about what you need – only buy the essentials, not items that may come in useful later.
5) Don’t ever feel obliged to pick up the tab when you go to business meetings, or when you’re out with friends. Too many people assume you’re earning a fortune if you have a small business and you don’t need to spend cash to prove you’re doing well – especially if you’re not.
6) If you have staff, do anything you can to avoid giving them the means to spend money. That means no company vehicles for personal use, credit cards, or mobile phones. Even if they want to buy a pack of post-it notes, make sure they get your signature first. You’d be amazed at how careless some folk can be with other people’s cash.
Do you know small business owners who spend excessively? Have you done so yourself? Did you regret it?
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My brother was a classic example of this. He always wanted expensive possessions to feel important. His motto for gift-giving was: “anything by Porsche, anything by Rolex,” etc. Early on in his small business career, his “company car” was a Mercedes. A number of years later he was living in his office and sleeping under his desk, before the business went under.
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Hi Dot – sounds like it was a real recipe for disaster. I hope he recovered from his business sinking and learned from it.
No boats and no cocaine when starting out, got it.
Kidding aside, you’re absolutely right that you need to keep expenses down to a minimum when starting out. That’s one of the good things about Web 2.0, you can do a lot with little expense. So far I’ve spent about $87 for theThesis theme for my blog, in addition to $12.00 a month for hosting and my domain, and $5.00 a month for ejunkie. I would have a laptop, internet connection, and a printer even if I didn’t have an online business (I now consider my blog to be online business), so I’m not counting those. Pretty good, I think.
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Sound advice. I’m fairly frugal, in my personal habits and in business, so I can’t say I ever spent on something major and then regretted it.
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Cath, it’s a very interesting story about Simon Cowell, as I didn’t know that he was once owed half of million debt before! Honestly, most of my friends who went bankruptcy were mostly overspent in their business! It’s better to be frugal than being broke…
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Interestingly, a rather large number of people get tempted to do so & get caught in the vicious circle. Because irrespective of your income, over-expenses can take any profitable business down.
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Oh your post is hysterical to me!!!!, me, the queen of garage sales! Luckily, I’ve raised my kids to be blind to trends/fashion/anything that costs more than what a garage sale would charge.
And in my vast venerable wisdom, I’ve come to find…..quality comes from how you feel about something, not about what others trumpet.
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I love how you included cocaine in your list of “stuff that won’t contribute to the growth of your business.” Totally made me laugh. I started my business for a whopping $20 and I’ve always kept my overhead as low as possible. That’s the way to roll.
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I know a lot of them and the funny thing is that how did they own a business in the first place when they are not good at handling money.
They have fallen eventually, but still, they move on to repeat the same mistakes. I think that’s insanity.
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It’s very interesting to see what many people write and read about everyday. I never would have thought a blog post would be written about this. Then again I hardly come online. Anyways thanks for the information I really needed this.
I think I am from the completely other end of the spectrum. I automatically look for ways to re-invest money I make with any online venture. Eventually I’d like to have enough money to spend at will, but it just seems like common sense to re-invest until you are stable.
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I feel this kind of mentality towards material ‘things’ is very symptomatic of our culture. Of course, this type of attitude has always been around, and always will be. But I can’t help thinking it’s like a caricature of success, of someone trying too hard to seek approval and prove a point. Most modern societies have their culture embedded in marketing and commerce, and always have, but to me, it feels like that marketing machine has become so fine-tuned, so utterly ingrained in the way we live, and its influence so great, that most people wouldn’t know how to survive without it.
When it comes to my business, I’m pretty tight fisted. I have a propensity towards gadgets, software and gizmo’s, but only buy what I need. I have made mistakes and put money in the wrong areas, but I learnt from those. But, I never, ever put money into what I considered the ‘poser’ side of things. But, I think that came with maturity, and don’t place much value in them. Had I of started my business 10 years earlier, I would of probably gone under due to spending money on the manner you mention.