Poor money management has been the cause of more business failures than any other single issue. And it’s no wonder. We aren’t born knowing how to manage money. Most of us aren’t taught how to handle it either. We figure it out along the way, through much trial and error.
Those same mindset issues and bad habits that wreak havoc in our personal finances can plague our businesses as well if we’re not careful.
Catching Shiny Object Syndrome
Some things are just hard to resist—especially when your friends and colleagues are all jumping on board! New tools, training, group coaching programs, and even business models can all have a strong pull, and if you aren’t careful, these shiny objects can quickly distract you from your current goals.
If you find yourself catching shiny object syndrome frequently, try this two-step plan instead:
- For “too good to refuse” offers, make a plan for achieving a positive ROI before you purchase. If you cannot find a (realistic) way to make the purchase pay for itself, don’t buy it.
- For exciting new business ideas, create a “someday” list. Jot down your idea and a basic outline, then get back to the task at hand. Now that great idea won’t be lost, but it also won’t join the ranks of half-finished business plans that litter the internet.
- If you really want to overcome Shiny Object Syndrome, check out Kelly McCausey’s FREE course, Managing Shiny Object Syndrome.
Falling for the Sunk Costs Fallacy
If you’ve ever said to yourself, “I’m not using this subscription, but I can’t give it up! I’m still paying the launch price and now it’s much more expensive!” Then you’ve fallen for the sunk costs fallacy.
This common mistake is famous among economists, and we all fall victim to it from time to time. Simply put, the sunk costs fallacy is what makes us justify investing more money or time in something—even though we’re not seeing results—because we’ve already spent so much. It’s what encourages us to repair the car one more time (after all, you just put new tires on it), eat a meal we don’t enjoy (simply because you’ve paid for it), and yes, continue to pay for tools and resources you’re not using.
Take a few minutes and examine your current business expenses. What are you paying for month after month that you’re not using? Either make a plan to put them to work for you, or cancel them. Stop falling for the sunk costs fallacy.
Too Much Penny Pinching
You thought this was all going to be about overspending, didn’t you? Here’s the kicker: Spending too little is just as bad for business.
When you’re constantly on the lookout for free and low-cost tools or working 16-hour days because you “can’t afford to outsource,” you’re not doing your business any favors. Sure, it looks like you’re bootstrapping and working really hard to make something from nothing, but what you’re really doing is digging yourself a rut it will be nearly impossible to climb out of. Not only that, but you’re reinforcing a scarcity mindset that will continue to plague you for years if you let it.
Rather than pinching pennies, learn to spend money strategically. Buy what you need, when you need it. Invest in top-quality products and programs rather than settling for the low-ticket, half-baked plans. Just like quality clothes, cars, and furniture, quality services and software last longer and work better. And unlike that car, good quality business tools will pay for themselves.
Jyll Hoyrup says
I have done all of these and one of my goals this year is to NOT buy the latest deal.
This is amazing pointers. I specially buy a lot and find later in the year that I am not using the material or courses . But this post has given me a goal for 2020 to think twice and plan better.
I have a rule that when I buy something, I put a task on my calendar to implement it within the week. If I do not have time, I will pass on it.
And, I only buy when I am ready – not just because there is a ‘deal’ going on
Roy A Ackerman, PhD, EA says
Actually, Paul, we found more of our clients failing to recognize how to predict (and monitor) cash flow- and paying their employer taxes (especially start-ups and solopreneurs).
Cash Flow is KEY to running a business!! Wow!
Dr.Amrita Basu says
I like the sunk cost fallacy tip. Need to watch out for that and avoid FOMO.
FOMO can be a tough one to fight – well, for me sometimes!
I agree with all your points.
We retired our business after 52 years and since I started on a shoestring and never had any business loans, I wouldn’t say I was a penny pincher (like I am when grocery shopping) I always looked for ways to save without giving up what was needed to grow.
That is the way to go… if it does not impede or cause extra unnecessary work that eventually can COST you more.