Tips to Avoid Overextending Yourself and Your Business

In business, overextension is a term used when financial commitments extend beyond capacity to meet the agreed-upon terms. When you are unable to pay your debts, vendors and service charges, your business health is at risk.

A business struggling to meet its obligations is an overarching problem with consequences that include:

During the vicious cycle of overextension, you may see an overlap where your personal and professional life intersect. When a business is in a downturn, the strain has a deleterious impact on relationships.

A prime example of problems that come from overextension in business is the story of a unique bakery that creates made-to-order cupcakes. Marcus provided consultation to the bakery in 2015 when he visited the business in Inwood, New York City. What was most glaring to Marcus when he walked into the shop was that it was in dire need of renovation.

Until that moment, his wife was not aware of money lent to underprop the business other than her own investment. Even before this crystalline moment, she had said the problems with the business were putting stress on their marriage.

Another business experiencing financial commitments that could not be met was a NYC cookie business. In 2019, Marcus provided consultation to Rachel, the business owner. At the time, Rachel was carrying outstanding loans with interest rates ranging from 12% to 36%.

FirstEnergy Corp., based out of Akron, Ohio, is another utility company on the Fortune 500 list with a ranking of 294. Reportedly, they have a long-term debt of $17.8 billion with an annual revenue of $11.3 billion.

One crucial mistake is avoiding the numbers. Before making business decisions, get your arms around such critical metrics as production cost, overhead, labor cost and anticipated repairs. Using the bakery as an example again, the owner had already signed a lease for a new bakery location before calculating projected profit. After consulting with Marcus, it became evident that anticipated sales less labor and rent translated to a loss. Marcus explained to the owner, “We have to prove that we can make money without adding locations, and we have to find ways to actually put cash in the bank. Until that happens, we shouldn’t be doing anything else.” The owner pushed back at first, but as Marcus says, “At the end of the day, the numbers don’t lie.”

Passion about your business is essential, and you certainly don’t want to lose that. The same is true about emotional bonds with family and friends. As Marcus says, “If you don’t love what you do, then you shouldn’t do it.” But sometimes you may find yourself doing too much. If you don’t take care of yourself, you will not be in any condition to take care of your business or the people in your life.

Always keep an eye on your numbers, including inventory, production cost, human resources, vendor contracts and margin. Be methodical. Marcus always says, “We have to know how much money we have, what we’re spending it on, and keep track of our expenses at all times.”

Surround yourself with people you trust, and heed their admonishment if your numbers are in jeopardy or if you need to wind down personally. Common yet worthwhile advice is to avoid living beyond your means. That applies professionally and personally. If you need help, bring in a professional advisor. Sometimes we are too close to the situation to be objective, and we need a third party to be the voice of reason.

Sometimes, we simply have to say no. Whether it is giving away your free time or undervaluing your product, you are not helping anyone by always being agreeable. Hesitate before you say yes.

Thrive Global published an interview with Michelle McComb, VTS Chief Financial Officer, in 2019. One of the leadership lessons the CFO shared is to not overextend or under-deliver. She explained that she had welcomed challenges earlier in her career that were not her bailiwick. Since then, she learned to say no. “You want to deliver quality work, and in order to do that, your wheelhouse needs to be in order.”

Marcus shared this insight: “I respect money, and I think that a lot of people don’t.” As an entrepreneur, analyze your balance sheet assiduously. Recognize the value of your product or service and the costs to bring that product or service to market. Ensure the business is thriving before expanding into new territory. That applies to physical locations and product lines. Don’t feel you have to do this alone. Communicate with people you trust to be sure your judgment is not clouded by your spirit of adventure.

On a personal level, look out for the telltale signs that you need to take a break, reprioritize or shift your focus. Be resolute in monitoring personal finances by keeping a record of your monthly expenditures and income. Avoid spending more than you have to ensure you are always prepared for emergencies. After all, change is a certainty.