As a start-up business, you’ll face many challenges in the early stages of operations while you familiarise yourself with your business landscape and explore your new business venture. With so many different areas of business to focus on, budget can often be neglected. One of the most important things to consider though when growing your start-up is how to save money and reduce costs.
If you’re driven to save money early in your business, you’ll learn how to hustle and fight for the best resources as your business grows. Your investors will be impressed by your rigour and discipline and you’ll create a business culture that will fuel your growth moving forward.
We’ve compiled a list of questions that you need to be asking yourself if you want to build an efficient and profitable business that will not only keep current investors satisfied but also improve your chances of getting subsequent rounds of funding.
Do you need to use expensive software right now?
When you’re looking to save on initial purchases, known as the initial outlay, open source can help you get off the ground. You don’t need to buy that expensive office software and servers when you can switch to a cloud vendor at a fraction of the cost.
For most things you need to run your business – bookkeeping and accounting, word processing, design, or presentations – you can find an open source and/or cloud version of it that is free or much less expensive than similar commercial software.
Is there a tech solution?
Along similar lines to the open software, look for tech solutions to different business problems. Chances are that another start-up out there has a product that’s cheaper and better than the big brands on the market.
Do you have to buy new?
Buying new equipment can be a huge initial expense and paying for it over time may also put a strain on your future profits. So, where kit really doesn’t have to be new, buy functional but used.
Do you need it in the first place?
Do you really need that piece of equipment? Or do you need to replace or upgrade it? Think it through instead of just going for something larger or newer. Use what you have until you are certain you need something else.
Have you reviewed your operating expenses?
If you buy stationery for the office, is there a different supplier that will give your business a bulk or loyal customer discount? Day to day expenditures on simple things—coffee, maintenance, and supplies – all add up. Putting aside some time to go through your existing operating expenses to see where you could make savings could make a significant impact as your business progresses.
Get into the habit of comparing vendors and getting quotes at least once a year to make sure you’re getting the best rates. This includes your merchant card services – the more you grow and the more money you process, the more clout you’ll have to negotiate a more favourable contract.
Are you asking for discounts?
This is so simple, yet often very effective – and there’s no shame in trying to secure the best price for goods or services. If you don’t ask, you don’t get.
Whatever you’re purchasing, whether it’s software, furniture, or office space, always ask, “Is this the best price you can do?”. Ask if they have a promotional offer or rate and what that might entail. It won’t always work, but when it does, you’ll save.
Are you looking for discounts?
It’s usually cheaper to buy in bulk than individually. When you talk to your suppliers, see if they offer discounts for bulk buys. Generally, suppliers are willing to work with and negotiate terms with their customers. If your supplier isn’t willing to offer discounts, find one that does.
Don’t limit yourself to local suppliers. Yes, it’s good for the local economy if you do, but you may be able to find suppliers further afield that offer discounts on shipping and bulk purchase that cost less than local options.
Ready to barter?
Bartering, especially with other businesses, might seem old-school but can still definitely be an effective way to reduce costs. You may have to wait until you have assets you can barter with, but before long you’ll be ready to swap services or unused equipment with a similar business in the area that needs it.
It’s important to approach these types of arrangements in a spirit of generosity. Make sure you know the value of what you have to offer, as well as what you’re asking from the other business to avoid insulting or embarrassing anyone.
Can you reduce your discretionary expenses?
Discretionary expenses are those you don’t necessarily have to pay at a particular moment. You may not even need the expenses at all. Work through your expenses list and determine the expenses you can reduce or remove altogether.
Can you outsource or contract some work?
For those moments when you have smaller tasks that don’t warrant a new hire but that you just can’t add to your packed task list, outsource or ‘micro-contract’. Use sites like Upwork to source support for those tasks that you just need to delegate.
It might also make for sense for your business to use independent contractors instead of regular full-time employees. This will give you much more flexibility in your hiring practices and save you serious cash on employment taxes and other costs associated with full-time workers.
Would you consider employing someone early in their career?
People at the start of their careers have little work experience but are looking for entry-level positions and salaries – and this can save you money. Yes, there may be times when a more experienced candidate makes business sense, but you’ll find that solid employees with little work experience are competent and eager to do well.
If you go down this route, good training is key. If you do bring in employees with less experience, set them up for success by training them well and addressing gaps in their knowledge and experience as you move forward.
Could you cut your employee hours?
Are there employees at your company who would transition to part-time if given the opportunity?
If you make it known that you’re open to shorter work weeks for those who might want or need them, this can save you from paying those full-time wages without having to lose a good team member completely.
Do you know the value of your best employees?
A high performing employee that enhances your company culture is a real asset. Not only that, it’s also a valuable relationship and support as you continue your journey.
The costs associated with hiring new staff can be significant, so if you have a solid team member, do what you can to keep them. Look after them, listen to them, understand what they’re looking for in terms of career trajectory and opportunities for growth. It’ll save you a lot of money and energy the long run.
Can you cut down on meetings?
The next time you’re in a meeting, do some rough calculations based on the number of people in the room, and the average hourly salary you’re paying them. Sometimes the results can be staggering.
Review both your own and your employee’s calendars—how many hours per week are spent in meetings? Evaluate the cost and benefits to the company. Most probably, you can cut back on meetings and free up time for getting actual work done.
Could you virtualise your office?
The current pandemic has forced companies to go virtual, but moving forward, do you need to be tethered to one location if your business allows for it? Start your business from your home and use technology to connect to your employees, target audience and customers. Once you have established your customer base and can spare the cash, you can move your business to an office if you need to.
Have you considered sharing an office or using a co-working option?
If you do absolutely need have a physical office for your business, why not share the costs on leasing a space with another business? This carries inherent risks, of course, but could be a viable option if you have a close business connection, especially if you don’t need lots of space.
Another way to approach this, if your team is small, is to look for co-working spaces in your area.
Could you do your own marketing and PR?
Hiring a marketing or PR agency can be very costly, but if you’re passionate and knowledgeable you could be your own spokesperson. So, learn everything you can about marketing and public relations for your industry, and make sure you’re putting your best foot forward when you promote and talk about your business.
It’s also a good idea to be as creative as you can with your PR – think outside the box, take a guerrilla approach, and cut through the noise. And if that doesn’t work, just ask. Call up media channels and simply ask them if they’d be interested in featuring your business. It’s often the case that journalists and producers are actively looking for a story – and you’ve just made their life a lot easier. Be subtle yet persistent and you’ll get that valuable media coverage.
Have you considered social media to promote your business?
Promoting your business through social media is much more affordable than investing in traditional media and print. Best of all, it provides two-way engagement between you and your market on a round-the-clock basis.
However, tackling social media on your own may help you to save money to start out with, but to do it effectively, especially over several platforms, you must devote a serious time and energy to it. So, eventually you’re going to need some assistance.
Have you tested your paid marketing?
This is a simple tip but one that will save you money in the long run. Too often, after you get a little funding, the urge to pour it into a Google or Facebook ad campaign can distract you from testing your marketing first. So, run a few small campaigns and ensure that your targeting and keywords look solid before increasing the spend.
Are you growing incrementally?
Incremental increases in your business growth give you an opportunity to measure the effectiveness of each step of the change before investing more money in the following steps. Smaller steps will also limit the losses should a change not go as planned.
So, start your business small and establish slowly increasing goals to grow your customer base. Once you’ve established your business and are operating well, you may find that you are able to spend a little more. This may be the time for you to address equipment upgrades or new hires. You may also want to explore changes like new products or services or expansion.
Are you tracking your cash flow?
Track your cash flow to avoid late payment fees or missing bill payments. Cash flow is critical and most small businesses that fail do so because they run out of cash.
Cash pays your expenses before you generate revenues. It also covers unforeseen expenses that crop up. Follow your cash through your statement of cash flows and use this statement both monthly and annually. All you need is your monthly financial data to determine where your business’ cash is and if you have enough.
Have you established a budget and sales forecast?
To really understand where you can reduce costs, establish an expense budget, then create a sales forecast.
Don’t stop there though. Make time each month to compare your actual spending and sales to your forecasts. This regular financial review will give you a better insight into where your cash is going, and where there are opportunities to increase your income.
Are you prepared for the unexpected?
Do you have a solid business insurance plan that is appropriate to your industry and all the related risks? If you invest in a bad policy you end up incurring heavy costs if something disastrous happens, such as theft, fire, or flood damage. Do the right thing and contact your local insurance agency to find out how to protect your business from potential risk.
Can you stick to your mission?
If you have a clear mission – and you stick to it – you’ll be better placed to keep a lean and savvy company structure and operation. Try to stay as focused as you can on your critical activities and assess every task that deviates from your ‘core’ in terms of whether it generates revenue or prevents losses.
Can you say ‘no’?
One of the hardest lessons to learn in a start-up is saying ‘no’ to tempting possibilities that are not in your short and mid-term scenarios and that will demand a lot of time and resources from you and your team. This is especially the case when the invitations come from business partners, but stay firm!
As a start-up, you cannot afford to spend money unnecessarily. These tips are small changes that reduce costs and go a long way toward saving money and improving profit.