Get new posts in your inbox

This is a guest post by Shabana Shiliwala, who owns The Financial Sort, a financial planning company based in Austin, Texas.

How many small businesses have gone under because they believed the myth “You need to spend money to make money” at face value? Following this phrase literally has led too many business owners on the wrong path, forgetting the first rule of business success–be profitable.

Remember this simple equation: Income – Expenses = Profit. If your profit isn’t where it needs to be, take a closer look at your expenses. You only have so much control over your income, but you’re fully in control of how much money you spend.

Many business owners automatically believe they need a loan to operate a business based on their estimated operating costs. Try reversing your thinking: can you lower your operating costs so you can borrow less or eliminate the need to borrow any money at all? The less money you owe, the less money you’ll spend each month on debt payments.

Tax deductions
You’re not the only business owner who has fallen into the spending trap of thinking, “It’s deductible.” Deductions only matter if your business is making enough profit to owe significant taxes in the first place. Even when your business has reached that point, you can have it both ways by making a contribution to a business retirement plan–you get the deduction without spending any money.

Employee expenses usually make up the bulk of most income statements–payroll, unemployment taxes, benefits, etc. Before deciding you need more employees or even any employees, consider lower-cost alternatives like hiring an independent contractor or temp as needed.

Besides being one of your largest monthly expenses, renting commercial space usually involves lengthy lease timeframes, reducing your flexibility to cut costs in this area. New business owners often dismiss the idea of starting out by working from home, but choosing this route could put you on the fast track to profitability by keeping your expenses low. When that’s not an option, start out with a lower rent at first by choosing a smaller space or less trendy area. You can always expand and upgrade once your business income can support a higher rent without affecting profitability.

Social media has created low-cost advertising options that never existed before. If your target markets use social media, you can reach large numbers at a fraction of the cost of advertising in traditional media.

Stop following the crowd before you fall off the cliff. The reality is, “You need to spend less money to make money.”