5 Ways to Waste Money at Your Business

No one starts a business with the idea of pouring money down the drain. But even if you think you have been ruthless about hunting down “lea
July 22, 2010

No one starts a business with the idea of pouring money down the drain. But even if you think you have been ruthless about hunting down “leaks” in your budget during the downturn, you may be surprised to find that your company still has some.


Whether we are heading into a recovery or a double dip recession may be an open question. But one thing is certain: No matter what the economy does, your venture will be better off if you avoid these money wasting mistakes.


1. Going Gaga for Growth


I recently asked Nat Wasserstein, who does turnarounds of troubled businesses at NS Wasserstein & Co. in New York City, to identify what he sees as the top areas of waste in the businesses he sees near death’s door. “A lot of businesses get in trouble by becoming googly-eyed for growth,” he says. Some business owners get so excited about winning an order from a marquee-name client that they don’t take time to determine if the sale will be profitable, he explains. Because big clients typically set the terms, the profit margins may be pretty low. 


If the entrepreneurs must borrow money at a high rate to pay for the labor costs and materials to fill the order, the deal may end up costing a business money. In a worst-case scenario, the interest on the debt may be so unwieldy that the company folds.


2. Techno Addiction


Many struggling businesses have spent money on software that isn’t all that useful and requires excessive staff time—and expensive consultants—to manage (as well as costly annual license renewals), says Wasserstein. Often, it would be more efficient to simply jot down the information being stored in the software on a piece of paper, he says. “There is almost an intoxication with technology,” he says. To avoid this trap, do your due diligence on any software you plan to purchase by asking other business owners about their experience with it. (LinkedIn is a good way to connect with them).


3. More-Is-Better Marketing


Don’t spend money on expensive forms of advertising, such as TV spots, without testing whether a given method is the best one for you, says Wasserstein. “You might be better off with a quick sentence on AM radio,” he says. Make sure you have set up a system to gather concrete data on response rates to any form of advertising or marketing you use—even if it is simply sending out post cards—and that you pay close attention to these results when making decisions.


4. Trade Show Mania


Don’t make the mistake of spending money to attend trade shows that don’t contribute to the bottom line, says Wasserstein. He advises that business focusing on the small number of trade shows that are crucial in their industry. And don’t get carried away with developing your booth, if it will make your presence at a trade show unprofitable, he adds. “You can have a small presence,” he says.


5. Willy Nilly Web Planning


As an editorial consultant, I have noticed that many small companies spend far more on their websites than they should because they don’t build their sites in an organized way. The owner may, for instance, start out working with a designer without talking to the marketer he plans to use to create the copy for the website—and discover later that the design isn’t suited to the marketer’s approach. It may, for instance, be so image-heavy that has little room for copy, or it doesn’t incorporate a blog the marketer wants to add. Then the owner has to spend money undoing or changing the designer’s original work.


When you build a site, it makes sense to have three key people on your team from the get go: a designer, a marketing or content strategy consultant and a web developer. (A project manager doesn’t hurt, but if you’re organized, you can play that role). You should have regular meetings or conference calls with the team so to make sure everyone is working toward the same goals, to troubleshoot potential problems and determine if any changes being suggested will require technological work that will be too expensive for your budget. 


It’s far more costly to undo the damage that a poor website design can cause than to pay these folks to join a 30 or 45 minute call every week for the two or three months when your website is being built. Many marketing firms, both large and small, can put a web team to work for you, which can be a timesaver. It can also save you thousands of dollars in the long run.


Elaine Pofeldt is an independent journalist specializing in entrepreneurship whose work has appeared in TheAtlantic.com, BNET, Crainís New York Business, CBS Moneywatch, Good Housekeeping, Inc., Working Mother and many other publications. A former senior editor of Fortune Small Business magazine and editor of its website, she does editorial consulting for online and print publications.