By Brett Farmiloe

What is one business item that startups should put aside until the business actually starts to make money? We posed this question to successful startup founders and CEOs. From not issuing credit cards to employees to holding off hiring a public relations team, here are seven unnecessary expenses for new businesses. You’ll want to avoid these until your business starts making a profit.

7 unnecessary expenses for new businesses

1. Employee healthcare benefits

“A huge expense for a new startup is providing health insurance for its employees. Offering insurance can be put on hold until the company is financially stable, but that can it make it a little harder—though not impossible—to hire employees. There are a lot of people who don’t need health insurance and would rather get paid more instead. You also can hire a bunch of part-time employees. In my business, we didn’t offer full benefits until we were in business for five years. At first we had many young employees who were still on their parents’ insurance plan, so it wasn’t that big of an issue.

“Company health insurance is a huge, ongoing expense that you never want to take away from your employees, so you better make sure that you are able to afford the insurance after you sign up for a plan.”

—Evan McCarthy, SportingSmiles

2. Company credit cards for employees

“Depending on your line of work, your company may require certain employees to make discretionary purchases for the purposes of business, such as for meetings and travel. However, if a business is not yet profitable, then the control of finances should be limited to only those in charge.

“Allowing for discretionary spending with a company card, even from the most trustworthy employee, could lead to putting the company in a jeopardized financial position. In the early stages, it is wise to ensure that employees get their purchases approved by the CFO or their manager before actually making them.”

—Anthony Martin, Choice Mutual

3. Long- or short-term leases

“I have seen that one of the greatest reasons new companies fail is that they take on too much overhead before the company has even made a single dollar. And, I get it—we all think that our business idea is so good that all we have to do is hang a shingle and open an office, and the customers will flock to us like magic. Unfortunately, many startups find out the hard way that getting tied down in an office lease contract with unnecessary expenses is a fast way to go through money when they could have gotten a virtual office for less than $75 a month for getting mail, and built their business from their own living room.

“The money that you save for rent can go into development and help with the things that you have no time to do yourself. I tell people there is plenty of time to rent an office. The first order of business is to develop, grow, market, and prove your spectacular plan will be able to make money.”

—Alan Himmel, Florida Allstar Public Adjusting, Inc.

4. Advertising

“Many startups believe that they need to spend money to make money. However, this is not always the case. One business expense that can be postponed until the business is actually generating revenue is advertising. While it is important to get the word out about your product or service, spending a large sum of money on advertising before you have a steady stream of customers is not a wise use of resources.

“Instead, focus on building your customer base organically through word of mouth and free marketing channels, such as social media. Once you have a solid group of loyal customers, you can reinvest some of your profits into advertising to attract even more business. By taking a strategic approach to advertising, you can ensure that your startup has the best chance for success.”

—Jim Campbell, Wizve—Digital & Affiliate Marketing Agency

5. Retention optimization

“You can’t optimize what doesn’t exist. Before you’re making money, you have no customers, which means you can’t understand what’s making them leave or stay. At most, you should follow commonly accepted best practices when you’re building your systems and products. After that, stop tweaking and switch over to marketing and sales. Once you get customers through the door—and start losing customers—you can switch gears to retention. Not before.”

—Daniel Ndukwu, UsefulPDF

6. Unnecessary collaboration

“It can be tempting to collaborate with other startups, or even non-startup entities, when you’re just starting out. But it’s important to remember that your time and efforts are limited, which means every minute spent collaborating is a minute not spent growing your company.

“Many times, collaborations will be fruitful—but in most cases, they won’t be worth the time investment they require (especially if it’s with an outside entity). With this in mind, it’s best to focus on what you need to do in order to grow your business so that you have time for those collaborations when they’re actually necessary.”

—Tiffany Homan, Texas Divorce Laws

7. Hiring a PR team or service

“There’s very little need for a PR team at the infancy stages of your business when you still have a minuscule number of audiences. Since it’s Startup 101 to invest in good legal advice from the conception of your business, all you have to do is maximize that service to cover possible PR issues you may face early on. After all, most of PR’s core roles, such as giving your brand a voice and increasing your brand awareness, must still be organically handled by you until you’re able to monitor it on autopilot at the hands of your own PR team.

“While PR helps establish your authority in the industry, this comes naturally with the service your existing legal advisor provides. Putting off hiring a PR team until you’re making money and have a sizable audience will allow you to get your money’s worth out of your legal advisor, save on resources to institute other core business elements, and it may even push you to be more mindful about dealing with consumers.”

—Collen Clark, Schmidt & Clark, LLP

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