The Small Business Hierarchy of Needs: How to Prioritize Expenses

As a business owner looking at the big picture, every operating expense might seem like a non-negotiable expense. But not all business expenses are created equal, and especially in the early days when you might see some cash crunch and low months, it's important to know what you absolutely must pay vs. areas where you might create some float. This brings us to the hierarchy of small business needs.

Duh, it's like a famous quote...[from] Cliff's Notes.

In case you missed out on Psych 101, or it's a distant, if not entirely forgotten, memory, here are the Cliff's Notes on the original Maslow's Hierarchy of Needs:

Maslow theorized that people are motivated to achieve specific needs and that some needs take precedence over others. The most basic human need is for physical survival; consequently, this will be the first thing that motivates our behavior. Once that level is fulfilled the next level up is what motivates us, and on and on until we have moved up Maslow's hierarchy.

TL;DR?

At this point you may be wondering what Psych 101 and Maslow's Hierarchy have to do with your small business and being in the red. We've altered Maslow's Hierarchy to more appropriately illustrate the Hierarchy of Small Business Needs in order to help you understand what expenses must be prioritized before you can invest in others. While this is not exhaustive, it should help you rationalize an approach to tough choices in months when things are bit tight, and ensure you are maintaining needs even as you move up the pyramid going forward.

We've taken the liberty of switching Maslow's first two stages, as the most basic need for small business survival is protection and compliance in the form of insurance, taxes, and appropriate registrations.

Bottom Line

Starting and running a small business involves a lot of choices—some of them fun choices and some of them tough choices. But rarely do these choices come with an owner's manual—they often are based on current state considerations and your experience over time. By putting them into this pyramid framework, hopefully this gives you a clearer sense of priority and hierarchy when it comes to business expenses.

In Part II next week, we will cover what to do if you hit a month where you can't make payroll—how to make up the gap, what can wait, what can't wait.

Do you agree with the Small Business Hierarchy of Needs? Tweet us @SurePayroll.