Turning your small business idea into a reality takes a lot of time and money, and the path is riddled with unnecessary expenses. Where, exactly, should you be spending your precious capital? With so many different things to get in order, it’s all too easy to carelessly spend money, which can doom your business from the very beginning. In this post, we’ll be examining some of the common startup expenses and determining where and when you should spend your cash.

A Caveat: Every Startup is Different

Every new business is different, so there is no universal solution to startup budgeting. Something that’s immaterial to one company could be essential to another.

In this post, I’ve tried my best to review expenses that all startups are confronted with, but you’ll be faced with others along the way. Even if you find that the main decisions facing your startup aren’t addressed here, I hope you will at least come away with some new thoughts on how to prioritize them.

When and Where to Spend Capital

The items below are important, but how much money they require is to be determined. Of Nolo’s top 10 new business mistakes, three are related to unnecessary spending, so these areas definitely deserve a thorough analysis. 

Legal and Financial

The legal and financial decisions you make early on will form the foundation of your business, so skimping here can have serious consequences. In general, you’re better off erring on the side of caution and hiring a professional whenever you have questions about your business structure, contracts, accounting, or any other legal or financial issue. They will save you a lot of time and money in the long run.

With that said, the majority of small businesses don’t need a lawyer on retainer, nor do they need their accountant’s advice on every expenditure. Use these professionals to ensure your business is setup properly and to consult with when specific questions arise, but avoid monthly fees or contracts just to have them on standby.

You can do your own bookkeeping in the beginning, and companies like LegalZoom can assist with formally registering your company or preparing common business documents.

Labor

Hiring employees is a major expense. Do not rush into expanding your body count and becoming an employer. Most of the time, it’s best to outsource or use contractors before actually hiring an employee.

For example, if you need some help answering customer service calls or handling other receptionist duties, try using an answering service. If you need skilled labor, look to Elance or oDesk, two websites where you can search for and hire qualified freelancers.

Marketing and Advertising

Thanks to the internet, small businesses can reach their customers easier and cheaper than ever before. Instead of spending your capital on traditional advertising channels like the yellow pages or your local newspaper, focus your resources on the web.

Although you can set up your own website, the results are often poor. Hire a designer for your initial branding and website design, and they’ll be able to provide a logo and other graphics that can be used throughout your marketing efforts (invoices, stationary, business cards, etc.).

Ongoing digital marketing campaigns can produce great results, but the expense is often too great for small businesses. In the beginning, you’ll have to do a lot of the grunt work on your own. Create a blog, establish local listings on the major search engines, and spend time getting a grasp on social media. When your business takes off and you have more resources available, then you can get some more help with your marketing efforts.

Space and Equipment

There’s nothing wrong with working out of your apartment, buying used equipment, or having your cell phone double as a business line. Don’t waste money on office space you don’t need, and don’t rush out to buy the newest gadgets just because they can be justified as a business expense.

Make do with what you have and look for used items when it’s time to make a purchase. When your house is no longer big enough, move into the garage or look for shared work space in your area. Leasing office space should be avoided as long as possible.

Applications and Web Services

There are countless free or open source applications available for small business, and you should start with those before spending a dime on software. Google Docs is a free suite of office applications and the CRM provider Insightly has a free tier available for small businesses.

In the beginning, focus on how you operate instead of what tools you use, because any paid solution will be underutilized while you work to get organized. When your processes and operating procedures are in place and you have the need for more robust or more tightly integrated software applications, then you should look for paid solutions. There are dozens to choose from.

Conclusion

If you aren’t careful, starting a business can be way more expensive than it has to be. By scrutinizing every expenditure and taking the time to evaluate what you really need, you can save a lot of money and ensure you have the cash available to grow your business.

If you have any tips on when and where small businesses should spend their capital, please share in the comments. There is always more to learn!

Gere Jordan is a business development associate at Continental Message Solution, a leading telephone answering service for small businesses. They help entrepreneurs provide professional service without expanding their budgets.