When I started my first full-time business way back in 1996, I borrowed several thousand dollars from various sources. The bank, family members, and friends. It was a huge mistake.
Going into debt is bad enough. What made it worse was the fact that about 80% of the stuff I spent that borrowed money on was crap I didn’t need at all. It was all stuff I thought I needed as well as some stuff that satisfied my ego.
For example, I bought three different computers. A laptop (that was about $2700 since laptops were expensive back then), an expensive desktop computer, and a file server. How stupid! Why did I need a file server in my little one-man company??? I figured that since I would be doing IT networking consulting, I would need my own server. The problem is I literally never needed the damn thing.
A laptop? Why did I need that? This was well before the internet or even wifi was a common thing, so I ended up using it only a handful of times, and would have gotten along fine without it.
All I needed was an inexpensive desktop computer that would have cost me around $1000. That’s it.
I also purchased a multi-line phone system with a much-more-expensive-than-I-needed phone service. How dumb! I could have skipped all of that and just used my cell phone and email-based faxing.
I could go on, but I’m already embarrassed enough. I started my own business, and went into debt for fancy garbage I didn’t need. I completely wasted that money, had to spend extra money on interest, and had to stress out about monthly loan payments. All bad.
I’m not alone in this error. I once consulted with a newly-opened investment firm that purchased a $3,000 desk for each employee. There were nine employees, so do the math on that one. (When I started my business, my desk was an old, used, scuffed-up hand-me-down from my dad. At least that one I did right.) This small, nine-employee business making zero income had already spent (or gone into debt for) $27,000. For friggin’ desks.
I also once consulted with a scientific start-up that often had to fly employees from the US to Asia. Every time they did it, the employees got a first class, round trip ticket and billed it to the company. Do you know what a first class, round trip ticket from the US to Asia costs? It’s easily $12,000. And they were doing this all the time. Remember, this was a start-up, making zero net profit. When I fly to Asia, I usually spend around $1200 on my coach ticket. Couldn’t they have done the same?
This same company also bought a $10,000 couch for the front reception area. Hm. I see perfectly nice couches at the furniture store all the time for around $800.
Both of these companies are now out of business. I wonder why.
When you start a business, or even when you run an already-successful business, THINK CHEAP. Don’t spend wasteful money. Don’t spend money on anything unless you absolutely, positively need it. And even then, try to get it as cheaply as possible, even if that means you lease or buy used merchandise.
Hold on to your cash. It’s some of the best business advice you’ll ever hear.