Even start-ups with the best ideas can fail early because of the potential for crippling costs in the critical first year. While some expenses are unavoidable, some can be better managed.
In this article, we'll explore some of the critical areas where, if you're thinking about starting up, you can save vital funds in the early phases of operation.
Planning is Key
First off, business planning is essential for success. In cash terms, it allows you to forecast how much money you need to get off the ground, your fixed costs, how much you will charge for your product or service, how many sales you envisage, and, therefore, when you might approach break-even point.
Covering off the basics here means you are in a better position to work out how much cash you need, and for how long.
Working Capital and Funding
One of the most significant failings is not having enough capital to start. Some companies raise required money but fail to have enough working capital built into it so that there is stress on the finances if sales take a little longer than expected to come in.
The first potential cost saving, therefore, is to plan finances properly. Start-ups running out of cash owing to poor planning then have to try to arrange further funding, which will be way more expensive because lenders will be wary of the bumpy start.
By getting it right the first time, you should have only one finance credit line to worry about, one that is within the business plan.
Save on Office Space
One of the most substantial expenses for any business is office space. In some cities, the rental can go through the roof. In Los Angeles, for example, the rental can be $6 per square foot a month. Given that each employee should have around 100 square feet, that's $600 per employee each month. If you need a team of three, those costs soon add up.
If working from home is not an option, then a solution is to join those fuelling the growth in coworking space for start-ups.
By sharing office facilities with other like-minded people, you won't only be saving a lot of money; you'll be meeting potential clients on-site and better able to collaborate with others.
Be Realistic About Staffing
Alongside office space, salaries will be your highest cost. You should plan to be as lean as you can as you grow your business. It's a fine line, of course, as you need people to help you grow, but people cost a lot of money.
If you can pay yourself as little as possible, to begin with, that's a start. Secondly, you don't need to hire full-time employees for many functions early on. You should outsource as many roles and responsibilities as you can, for as long as you can.
With the gig economy exploding, you'll find experts you can hire on a freelance basis for just about everything - design, marketing, bookkeeping, or sales. The list is endless.
As well as saving money, this approach means you can easily dump someone who is not performing to expectation and hire someone else. Further, if a freelance is performing well, he or she might be someone you might consider hiring full-time when the time is right -saving you even more cash on recruiting fees.
Marketing
Naturally, you think your business is the best in class. If you don't, you're doing something wrong! But you need to hold back your enthusiasm when it comes to telling everyone else about it.
You'll have temptation at every turn: spend on Google Adwords, buy Facebook advertising, overspend on SEO or content marketing, throw a massive party for potential customers. Fall down any of these rabbit holes, and you'll be burning your cash before you've matured as a business.
Far better to plan a smaller, more targeted marketing campaign to begin with, then only increase the budget as your sales and available cash increases.
Otherwise, sooner than you would ever have hoped, you won't have a business left to market anymore.
Seek the Advice of Others
Finally, nothing beats listening to others who have "been there and done it." Advice is freely available. Most people, whether they know you or not, are willing to pass on some helpful tips that will help you shape your financial model in those difficult early years.
Of course, even with the best financial plans in place, you are not guaranteed success. Above all else, you need determination and a never-say-die attitude.
