When embarking on a small business, a sound mind and decisive attitude will serve you well. To say there are hundreds of decisions to make feels more like an absurd understatement. From your brand image to your customer service policies, your employee benefits to product packaging, the decisions you make will affect multiple aspects of your business.
Just when you thought it could not get more complicated, you realize that there are layers to some of the decisions you have to make. It is not a question of what you need, but in what capacity that you need, and more important, that you can afford. Below are 3 layered, small business spending decisions, and a guiding light to see you and your wallet through.
Location
Should you buy or lease your business’s space? Becoming the owner of your building will offer tax deductions, and (if extra space is available) you could rent out a portion of the building for additional income. Additionally, when time comes to close up shop, the selling of your location could be a huge return to put towards your retirement or next venture.
On the flip side, it is important to consider that leasing your space could afford you to stay in a better location with higher visibility. You will not have to deal with the added responsibilities of building maintenance; you will also have more working capital to work with and disperse in other areas as needed.
When debating over a location purchase or lease, examine the facts. You have to assess your current rent, sales and then profits of those sales. The more years you can track, the better your projection. Also, examining the current state of your personal finances (Do you have kids, are they soon-to-be going off to college?) is another good idea.
Estimate how much longer you plan to be in business and if the space would satisfy room for growth. What are the neighborhood trends like, what new business’s do you see popping up around you? On the flip side you have to assess the maintenance costs of your building, insurance increases and your aptitude to uphold those extra responsibilities.
Equipment
In addition to your business’s location, it is important to debate your spending options for equipment too. Leasing the equipment provides you with some fund flexibly, but in a lot of cases you will eventually end up spending more money than the equipment is worth.
Also, consider the type of equipment you’ll need. If you are a business that demands the most up-to-date technologies, leasing might be a better option.
On the reverse, you could also buy your equipment. Certain machinery and furniture are less likely to become outdated, making ownership the better option. For those that are still apprehensive that their equipment could become outdated, consider the depreciated deduction that offers an additional tax break. Also, ownership provides you with the right to privately sell off old equipment.
It is important not to allow a one-sided “flaw” dictate your decision; be open to the options that are available to you. For example, buying equipment may be the better option, however you may feel forced to lease because you need working capital for other areas of your business. Remember that something like a merchant cash advance could fix that one faulty detail and afford you the option to buy.
In short, don’t let single factors dictate your decision. Examine all of pros and cons and then find ways to work with certain flaws, providing you a path to the option you truly want.
Employees
While you certainly cannot buy or lease people, you can employee them as full time staff or outsource the jobs. Both will provide varying risks and attractive attributes, the goal is to find the staffing option that works best for your business.
Obviously you cannot fully employee someone without a reasonable workload and the ability to pay him or her a salary. You would be better off outsourcing something that will only be needed for a short period of time (legal advice, tax help, etc.). Accounting and bookkeeping are commonly outsourced. And because of technological advancements, common in-house jobs (like assistant or secretary) can easily be outsourced as a virtual position.
However, employing someone full-time, in-house will likely provide you with a more attentive and brand-conscious employee. Anyone who will be interacting with your customers is better off being in-house for these reasons. Also consider that in-house employees tend to be easier to trust with your secure information and provide the often-desired face-to-face communication.
Whether you decide to hire in-house or outsource some jobs be sure to check the background, references and reputations of all involved. Remember that this is another situation where creativity can get you the options you really want. For example, you may want a full time employee but cannot provide them with the most competitive of salaries, However, you may be able to afford schedule flexibility, wellness benefits and a better work/life balance than others in your industry.
As a business owner, what other spending options do you have to consider?
Kelly Gregorio writes about topics that affect small businesses and entrepreneurs while working at Advantage Capital Funds, a merchant cash advance provider. You can read her daily business blog here
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