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36
ACCOUNTING

Don't Let Expenses Snowball
 

A sticker price is one thing. Be sure you factor in all costs of your expenses. Here's what I mean.

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My mom used to say: 'The things you own end up owning you.'  While there's probably a psychological argument buried in there somewhere, there are some tactical implications of this phrase. 

When you buy something, you're also stuck protecting, maintaining, and supporting that product or service.  You become its caretaker.  And taking care of things, of course, costs more money.

  • If you buy a new car, you'll need to get it insured…and washed. 
  • Your new clothes need tailoring and then dry cleaning.
  • Your AC unit needs maintenance. 
  • A dog needs to see a vet.

Expenses snowball.  One expense begets another.  The true cost of one object is often far greater than the initial price tag would lead you to believe.

This is an important thing to understand before a founder opens up his or her checkbook to buy something for the company.  While getting a new TV for the conference room seems to balance in your checkbook, you must also factor in the cost of installation, the complementary speakers, monthly cable fees, and maintenance.  The full cost of ownership might not fit into a bootstrapper's budget.

This concept applies nearly everywhere in a company.  It even applies to people.  If you hire a new employee, his or her salary isn't the real cost to the company.  You must also factor in employment taxes, benefits, office space, and equipment, to name a few.

The trick to managing expenses while bootstrapping in the early days of a start-up is to always look around corners.  Before you turn a new direction and make a purchase, peek—and think through—what's in store.

Last updated: Mar 20, 2012




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