Does Your Startup Have a Spending Strategy? (Harvard Business Review)

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Which is More Dangerous in Startup Finance, Overspending or Underspending?

It’s no secret that when setting out to conquer the startup world, establishing a budget for your startup’s finance is one of the first and most important tasks that will ultimately dictate how well your fledgling enterprise will get off the ground.

Before you dive too deeply into the numbers, ask yourself these questions:

  • What is an appropriate timeline expectation for revenues? – You will need to grow systematically. Overextending your budget in places that aren’t essential for early development will only cut resources from where you actually need them.
  • What is the prospective return for each cost item? This includes location, staff, construction, consulting, and other factors. Identify your core competence and focus your spending on that. For example, if you are an accounting firm, exceptional finance software would be a wise investment.
  • How will you represent yourself? – Appearing professional is one thing, however in some cases, going over the top with stylistic spending may turn off potential clients/customers. Picture yourself as the client entering your office; would you want to work with you?
  • How do you employees view you? – Employees are there to earn a living. Spending extravagantly in the early days of your company may send the message that appearance over substance is the name of the game at your company. Remain focused on what’s important, because your employees will notice if you don’t. 
  • What can you do without? – You don’t want to be left at the end of your timeline looking up a break even margin. Projecting the variables that might cause this shortfall will do wonders for when it comes time to face projections vs. reality. And if you do exceed expectations, you’re ahead of the game.

So, which hurts more, overspending or underspending? Both can cripple your startup, but for entirely different reasons. Answering these questions will ideally help you land well clear of both misfortunes.

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