Skip to content There are two major reasons why entrepreneurs end up losing money needlessly. First, they have a high tendency to throw money at problems in an attempt to solve them. Second, they often lack financial management skills.
To launch, run and grow a profitable business, yes you will have to spend money. However, what is most important is what you spend the money on and how you spend it. This is why an important skill you will need to develop to build a profitable business is money management skill.
There are several areas that business owners tend to spend money on but inadvertently end up putting their business at risk. It is tantamount to wasting money. They are financial leakages you should guard against. Learn from it and avoid making the same mistake. Let’s explore some of those areas of financial leakages.
1. Hiring Incompetent Staff
Hiring an incompetent employee may seem like a cost-saving measure initially because they are cheap, however, in the long run, the decision will prove costly. You or someone else in your team will end up doing the same work you hired the incompetent employee for. This will rob you of valuable time that you could have spent working on higher-priority tasks. Not only that but the risk and damage they can introduce to your business may be enormous. When you eventually get rid of such an employee you will have to start all over again recruiting, onboarding and training their replacement.
The same principle applies when outsourcing jobs to any contractor, freelancer, vendor, or agency. Ensure you work only with the competent ones who have a successful track record in the area of work you want to engage them in. Prioritize quality over price. Competence may seem expensive initially but as long as they can get the job done, it is a good price worth paying.
2. Developing Products That Lack Market Fit
Entrepreneurs waste money and sometimes end up bankrupt when they develop, deliver, or distribute products with poor market demand.
The success or failure of your business depends heavily on the quality of the products and services you offer. A product that lacks market fit is poor no matter how well it is designed. A poor product in this context is any product or service that the market does want either because it is not solving the intended problem or because it is poorly designed or delivered.
Whatever it takes, you should ensure that the offering you are bringing to the market is nothing less than what customers want, how they want it, and at a cost they are willing to pay yet allows you to make profit.
3. System Vulnerabilities and Weak Security
There is no such thing as a simple business. Considering all the structures, systems and processes required to power a business, it is a complex enterprise regardless of its size whether it’s a startup, small and medium enterprise (SME) or a large corporation. This complexity requires being proactive but oftentimes, business owners don’t pay attention to these components because there are other urgent issues that constantly demand their attention – running the business, trying to secure funding, or driving sales.
By not paying enough attention to building resilient systems to keep their business running at all times no matter what happens, entrepreneurs end up losing money in the long run when disaster strikes.
By not spending a smaller amount of money on insurance, cybersecurity, financial controls, creating standards of procedures (SOPs), staff training, office security, maintenance, inventory management and other critical components, they end up losing a lot more in revenue when breaches occur and operations are disrupted. They then spend more money in attempt to recover from the impact of breach.
4. Unnecessary Costly Items
After running a business for a while you will realise that many of the things you spend money on are unnecessary. Before spending, particularly on costly items, double-check with your management team if you really need the item. There are critical questions you should consider. For instance, consider if you really need a particular software application at this stage of the business before going ahead to subscribe for it. Do you really need to rent an office? How about starting from home, renting a coworking space, or using a friend’s or family’s facility? If you would rent an office at all, do you really need a large space? Instead of buying brand new equipment, would you be better off buying fairly used ones or even renting? Rather than paying for full subscription for a software application, how about using a free version first?
5. Penalties and Litigation
Business owners waste money that can potentially bankrupt their business when they fall foul of the law and are penalised for it. Penalties for late tax filing, violations of regulatory compliance, court judgement, contract defaults, and many more drain businesses of their limited financial resources.
Thank you for stopping by. I’m Ayo Adebamowo. Author, Speaker and Tech Entrepreneur. I’m here to walk your success journey with you. Subscribe to my newsletter for regular nuggets or check out other empowering articles on my blog to help in that journey. My latest book is Make Money, a primer on launching and growing a profitable business.
Written by : Ayo Adebamowo
About the Facilitator – Ayo Adebamowo Ayo Adebamowo is an Author, Speaker and Tech Entrepreneur. He is the founder of MyMedicalBank, a health technology company promoting digital access to healthcare through creating innovative digital solutions.
A Nigerian-British national, Ayo has been named as one of the 70 Most Outstanding Healthcare Professionals in the United Kingdom.
Having started and run various businesses himself in healthcare, technology, agriculture and publishing, Ayo very much understands from a practical point of view the pains, struggles and mistakes aspiring and established business owners often make that delay their success. He therefore brings his wealth of experience coupled with years of experience and research to help other entrepreneurs succeed in their journey.
