Where to invest (or not) when starting a business

After mentoring more than 100 business owners and hosting numerous workshops for small and mid-sized businesses, Tremblay has compiled a list of priority expenditures, which expenses to avoid when starting out, common errors and free tools to manage an initial budget.

Here are her tips for spending strategically from day one.

3 essential immediate expenses

1. Administrative costs, insurance and tools you need to operate 

When starting up, ask yourself what your business needs are. What do you need to be able to function?

These are the basic expenses that are necessary to run your business: administrative costs, rent, furniture, insurance, essential software and a simple accounting system.

Each sector has its essentials, such as payment and management solutions for coffee shops and restaurants; design, editing and image creation software for marketing agencies; and cost estimating and specification software for architects and construction companies. 

For management and accounting, you can start very simply with an Excel spreadsheet or free or low-cost tools. Following the same logic, you don’t need a full-time accountant right away. You can hire one for a few hours a month. “There's no need to spend a lot when you start out. Instead, focus on building a solid foundation,” says Tremblay.

2. Developing your product or service

Everything related to the product or service you offer has a direct impact on the success of your business.

If you open a clothing store, you must buy basic inventory. If you’re launching a new product, you need to prototype, test and adjust. If you’re a service provider, you might need to be trained or become accredited before you start.

Marie-Pier Tremblay gives the example of an entrepreneur who develops high-tech clothing for equestrians. “The quality must be flawless, so they assess multiple suppliers and bring in samples from China and elsewhere. Each test has a cost, but these are unavoidable expenses,” explains the Futurpreneur coach.

3. Marketing

Whatever your line of business, you’ll need to invest in your visibility, in other words, your brand image (logo, colours), as well as your brand showcase, whether physical or online.

Online visibility requires a website, a hosting service and a domain name. Then you have to promote your business in order to attract customers. Promotion can be free (social media presence, leveraging your network, word-of-mouth) or paid (brochures, online or traditional advertising).

Here are a few free or low-cost email marketing software options that will boost your visibility without blowing your budget.

4 expenses to be deferred or limited

1. A huge inventory (especially without an order or letter of intent)

“I worked with an entrepreneur who had imported and packaged huge amounts of coffee, tying up thousands of dollars, before he had even validated market demand. The result? Too much inventory, cash he couldn't access, and no certainty of sales,” says Tremblay.

Start small, test the market and try to get at least one letter of intent before accumulating too much inventory.

2. Rent that’s too high

Renting too much space when you start out puts unnecessary pressure on your budget.

Look for a functional space that meets your true needs and is in a good location. Focus on flexibility (short-term leases, shared space). Affordable rent safeguards your cash flow and gives you time to build your customer base.

3. Premium software

Tremblay says she has seen far too many small teams of one to three people paying thousands of dollars for highly sophisticated tools and software. “Impressive, yes. Necessary in the beginning? Absolutely not,” she says.

Choose applications and software that offer the basic features first and upgrade over time. She also suggests monthly subscriptions, which give you more financial flexibility at start-up.

4. Premium marketing and advertising

While investing in the company’s visibility is a must from the outset, it’s important to keep these expenses to a minimum.

“People work on their logo and website and feel like they’re making progress, but they’re still not talking to real customers and they’re not making sales. This often creates an illusion of progress,” says the Futurpreneur coach.

At the very beginning, leverage relationships in your networks to promote your business. And try social media instead of hiring a costly marketing or advertising agency.

Common mistakes and how to avoid them

Mistake #1: Too much (or not enough) confidence

Are you one of those people who has had dozens of business ideas for years, but never gets started? Perhaps your skepticism causes you to hesitate, leaving you stuck in the planning phase. Simply put, you don't feel confident enough yet.

• At the other end of the scale are “rose-coloured glasses,” says Tremblay. For example, thinking “I’m opening my restaurant next month and it’s going to be packed every day,” or “I’m going to make $500,000 in sales with my online clothing store in my first year.”

Both situations can lead to insufficient income and a precarious financial situation. “When you fall into survival mode, you no longer make informed decisions, and that can jeopardize the survival of your business,” says Tremblay.

Pro tip: Limit your spending and focus on sales. Think about how you can make sales as easily and quickly as possible, and by spending as little as possible.

Mistake #2:  Mismanaging cash flow

All too often, people confuse their bank balance with business profits. “I have $50,000 so I can spend it all,” they say. It’s how too many businesses run out of cash just a few months after they start up.

In some sectors, it’s normal to be in the red temporarily. In construction, for example, projects take months, and costs accumulate before payments come in. Profitability depends on each sector’s specific cycle. However, spending much more than you bring in for months in a row is a wake-up call, explains Tremblay.

Another common mistake in cash flow management is believing that growth is linear. Tremblay calls this “a false sense of success.” After a good month or after getting start-up financing, you might tell yourself, “From now on, it can only go up,” and ramp up your spending too soon, without considering that some months will be slower.

Pro tip: Figure out how much you spend each month and aim to save a buffer that will cover at least three months of expenses. Use this cash flow statement template to check whether your business is generating enough cash each month to fund operations, and this financial plan template to forecast your income and expenses for the coming months and help you anticipate your financial needs. Conduct a monthly analysis to release money that’s tied up, focusing on fixed expenses, subscriptions and software.

Mistake #3: Aiming for perfection from day one

Investing heavily in a website and a huge inventory, and then changing your mind six months later? “It can happen, and it happens a lot,” says Tremblay.

That’s why she recommends deferring certain purchases until later when the business is generating income. “Take the time to get evidence that it will work before placing big orders or spending large sums,” she says.

Pro tip: Treat your business as a prototype, not a finished product. Test, validate and adjust.

Next step

Use our free business plan template to help you write a professional business plan.