Four Ways to Keep Startup Expenses Lean

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In the early stage of a business, keeping costs low is key to longevity. If your enterprise is in the startup phase, consider these tried-and-true methods for streamlining costs without compromising growth.

 

Reduce upfront investment costs

Business owners should view the startup phase as a chance for experimentation. As you are testing your products and assessing how to reach your target audience, you can expect many changes.

For this reason, it is important to keep upfront costs to a minimum. Not only will this preserve precious cash, but it will keep your business agile and ready to respond to the market.

One way to streamline upfront costs is by minimizing overhead. This includes expenses such as office or workshop space, machinery, or inventory.  Look for opportunities to get your biggest expenses at low or no cost.

If possible, convert a space in your home into a temporary office to save on rent. You can also look for a nonprofit that offers low-cost spaces for startups and small businesses.

If you need equipment to launch your business, consider a leasing agreement. This reduces upfront costs and can help lower maintenance expenses. If leasing is not an option, purchase equipment secondhand.

 

Automate your processes

Startups generally have lean teams. In fact, you may be the only employee in the business. However, there are tasks that need to be done irrespective of a business’ size, including accounting, customer service, and marketing.

You probably won’t have the time or the skills to do all of these tasks yourself. At the same time, hiring an employee or working with contractors in the startup phase can be cost-prohibitive.

Automation is a low-cost way to manage repetitive but essential tasks. You can subscribe to a software-as-a-service at an annual cost that would be less than the monthly cost of a full-time employee.

Many automated services also offer package tiers, so you can retain the same systems as your business grows.

 

Leverage digital marketing

Traditional forms of print and media marketing incurred high production and distribution costs. Today, digital marketing has brought down costs considerably.  Investing in a digital marketing strategy can provide the most bang-for-your-buck, as online campaigns can easily reach a global audience.

Setting up a digital marketing campaign does not guarantee a return on investment. You must work closely with a digital marketing agency or social media account managers to monitor your campaigns and track conversions.

Since digital marketing allows you to gather data in real time, you can quickly assess every campaign’s success and make tweaks as necessary.

 

Avoid loans or credit

When used wisely, debt can be leveraged to accelerate growth by covering production costs for pre-orders and paying for essential overhead expenses. However, accruing debt in the early stages also has its downsides.

Startup needs are often unpredictable. If you overestimate your costs, you may borrow more than you need. Unfortunately, a common reaction for businesses in this position is to increase unnecessary spending. This can cause debt to balloon without making a substantial impact on revenue.

Further, debt obligations can impact a startup’s cash flow and make the company less attractive to investors. Instead of taking out loans, consider the following alternative sources of funding:

  • Crowdfunding- If your product or service has widespread appeal, you can pitch your startup on a site like Indiegogo. Interested customers can make pre-orders that will effectively fund your launch.
  • Bootstrapping- Personal savings or non-interest accruing loans from friends and family can be an ideal source of startup funding. However, avoid tapping into accounts with high withdrawal fees, such as pre-tax retirement accounts.
  • Grants- Depending on your industry, you may qualify for grant funding. If your startup meets the Small Business Administration’s definition of a disadvantaged business, you may be able to secure grant funding from the government.

 

Get experienced oversight

Once you have generated a sufficient number of sales to validate the viability of your business, you should consider investing in guidance and oversight from a financial professional.

If you cannot afford to hire a full-time chief financial officer (CFO), you can outsource CFO responsibilities and duties to a third party. So, what does an outsourced CFO do that could save you money? Here’s a list:

  • Increases profitability by eliminating redundant or excessive costs
  • Tracks and reviews cash flow
  • Ensures tax compliance
  • Secures investors and raises capital