Did you know that 9 out of 10 startups fail within a year of being set up? If you try digging up the reasons, you’ll realize one fact. Lack of financing is the leading cause of startup failure. When a startup business is formed, saving money is an essential step.
Startups that have enough finances enjoy long-term success. Thus, startup owners should find ways to increase their finances. Having enough money can help them process and ship orders in time.
Also, an excellent financial base will take care of emergencies if they arise. But this doesn’t mean startup owners should put all their money into their businesses. There are many ways to build an enviable financial muscle.
Being strategic by cutting upfront costs is one of them. It can save a startup a significant amount of money. Besides, it will put it in a better position to reach its sales goals and scale operations.
This article will go deeper into this topic. It will help a startup discover ways to save money as a startup. Read on for expert tips to help increase a startup’s finances and ability to scale.
Let’s get started.
10 Ways A Startup Business Can Save Money
Manage a Startup’s Expenses
Managing expenses is the first and most crucial step to take. Proper expense management can help it save a lot of money. Startups have various needs, and failure to manage them can cost a startup so much.
But then, proper expense management comes with experience. For startups, this expertise may not be easy to find. So, startup owners should first start by learning how to manage expenses.
For instance, they need to know what to do to cut down employee expenditure. Instead of laying off some, they can consider cutting down on their benefits. It will help them save some money.
If a startup offers training every quarter of the year, it can reduce the sessions. Making the training more intensive and detailed and reducing it to twice every year can be good. It will also be good to reduce breakfast parties and other nonessential expenses.
If a startup does that for some time, it’ll start to realize massive savings. In the end, workplace productivity will improve.
Adopting tech solutions for a startup can be an excellent idea. Technology simplifies work and increases workplace productivity. A team can benefit from various free tools that are available online. The startup can then advance to paid tools later when it scales its operations.
Startups have different problems that require technology. But the tools that a business needs will depend on the products or services they offer. If a startup sells products, it’ll need software to help manage the sales. Or, if a startup needs help with banking, they might use fintech apps to get the job done faster, and for less money.
Human Resources Example
Also, some tools cut across different industries. For instance, successful startups will eventually need to hire additional talent. This can be when it scales operations or some employees exit the workforce. But recruiting new members into a team can be a daunting task for startups.
That’s why tech is vital and, in this case, recruitment agency software will help manage the job. Indeed, human resources tools can help manage the entire hiring process in an organization. Also, they can help a startup advertise for a position, handle applications, interview the candidates, etc. The aim is to ensure efficiency throughout the steps. For example, an applicant tracking system can help check through the many applications. This is especially important after advertising positions that attract many applicants. The HR team may spend a lot of time checking through the applications manually, but it will be easier with software.
Besides saving a startup time and money, it will make the recruitment process fruitful. It’ll have access to better talent and bring it on board as soon as possible. A startup can also use job posting software to ensure its adverts reach the target audiences quickly.
In short, recruitment solutions can apply everywhere along the process. A startup can leverage them to ensure success in its recruitment process. Also, the more efficient the process is, the easier it will be to save time. It will not experience a decline in sales because of lacking human resources.
A startup can spend the least time hiring talent. In the end, the time it’ll have saved in the process will translate to money. The business will achieve better productivity because of the high-quality talent it will recruit. Besides, its productivity will be higher, meaning more sales.
Prioritize Getting Sponsorships
Startup companies are usually in dire need of funds. But generating the funds to keep them going can be tricky. They cannot rely on their profits even if they sell products. That pushes them to consider many other ways to finance their operations, for example, through sponsorships.
As a startup, sponsorships can be worth considering for various reasons. They can help increase a startup’s cash flow and also help it acquire assets. Besides, startups can build awareness and boost productivity using funds from sponsors, impacting sales and profits.
Finding sponsorships for a startup won’t be an uphill task if the owners know how to search. It will take some time and effort to get a sponsor that best fits a startup needs. And there will be various factors to consider. An excellent example is the sponsor’s interest.
Owners should look for sponsors that have similar interests to their startup’s. It will be easier to convince such sponsors than when looking for sponsorships. They can meet such companies during events like trade fairs in their industry—network with their managers and other people.
Once startup owners build networks, they will find it easy to take their business to the next level. The companies offering sponsorships will promote the product or service they offer. Most of these brands have a huge following that they can benefit from and save on advertisement costs.
Pro-tip: Don’t forget to apply for grants
Startups can also apply for grants from such institutions. They can get grants from the government, private companies, institutions, and other organizations. It’ll also be a good idea to participate in competitions organized by agencies from which they can get various rewards.
In the end, a startup can save a lot of money by benefiting from grants. It will be easy to invest its profits in other assets or use them to scale operations. As a startup, investments will increase revenues and contributions to the savings account.
Watch the Receivables
A startup will find it difficult to grow if people owe it a lot of money. DebtsThis can inhibit growth as a startup because startups do not have much money to spend. Most of them rely on small sales to produce more and increase their revenues.
Thus, startups should ensure there’s always money coming into their accounts. They should avoid giving debts that they aren’t sure will get paid. Or, they can choose to say no to debts. The aim should be to ensure there is a consistent cash flow into the startup.
Such small businesses should start with having a clear payment policy and plan. They can strictly implement cash on delivery for a start. This means making it known to all clients that they’ll have to pay for goods or services on delivery.
Also, a startup can adjust its terms later on. For instance, it can allow payments upto 15 days after delivery. Or, a startup can make it more flexible for long-term projects. But do not forget to ask for an upfront payment of at least half of the total payment.
Whichever model it chooses to implement, do not compromise. It should update all its clients incase of changes. Also, emphasize the strictness of the payment policy and put some consequences for non-compliance. That will ensure clients stay on track with the payments.
Also, having clear payment policies can save a lot of time. A startup won’t need to follow up on delayed payments or deal with defaulters. This means it will save money that it could have spent on the follow-ups. Also, it can use that time to be more productive and increase revenues.
Always Ask For a Discount
Startups need various equipment and inventory to run. These can be expensive to acquire if a startup does not invest time finding the best deals. It should consider asking for discounts on different products and services. It will ensure the startup maximizes the profits it makes.
Most people feel ashamed to ask for discounts. But then, a startup is a business that should make profits, so they shouldn’t feel ashamed. The items can be costly, but speaking to suppliers about discounts can help cut costs.
Most suppliers will be happy to offer startups discounts. This is because startups promise them regular business. After all, they’re just starting. They are assured that the startups will keep ordering if they offer them the best deals.
Startups should take time to negotiate for the best prices. Also, they shouldn’t speak to a single supplier. There are various suppliers in the market, and it is possible to find one that meets a startup’s needs. Taking time to explore what each offers then picking the best is an excellent idea.
Run a Virtual Office
We have already mentioned that startups can negotiate and save on office space. But there are many other ways to cut down on the expense of office space. For instance, one of the most viable options they have is operating from a virtual office.
This can save them the hefty rent charged on traditional office spaces. Running a virtual office means that a startup owner can work from anywhere. If the startup runs an ecommerce website, it can do this effortlessly by marketing and selling digitally.
Most fresh startups do not need physical locations. Remember, not many people know startups, so visits are usually very few. Most people learn and interact with them online. So, having a virtual office is an idea that’s worth considering.
Also, startups usually do not have big teams. So, there’s no point in having a physical office when there’re no employees. A virtual office will save a startup some thousands monthly. Thus, it would be best to start by thinking about running one then move to a physical location when the team grows.
Besides, the pandemic showed us that physical offices aren’t all that necessary. Many firms still allow their employees to work from home long after reopening. A startup can consider running a virtual office even after its team grows. All it needs is to ensure consistency in productivity.
Avoid Long-Term Hiring
Long-term hiring can save a startup a lot of money. However, it is not an excellent option when starting a business. It comes with expenses that may make it difficult to save some money for other tasks. So, it is vital to explore other options for increasing the workforce.
For instance, a startup can consider hiring freelancers and contractors. There are various ways this will save it money. Picture this, hiring a full-time team means it’ll have financial obligations every month even when they did little or no work.
On the other hand, freelancers and contractors aren’t expensive. First, the startup won’t need to pay them if they haven’t worked. It’ll only pay for their output, so it will call them to work when necessary. Also, they do not require any benefits or taxes, not even under the law.
Thus, having a full-time team isn’t a good idea even if a startup can afford it. Working with freelancers until the business grows is better. The startup can hire an in-house team later when it scales. It’s best to hire when one can estimate returns and are comfortable with it.
Avoid Automated Subscriptions
Businesses use various kinds of software to run. As said before, there are free and paid options for software tools. Startups do not need paid tools if they don’t do a lot of work. They can use free tools and still achieve the results they desire in the end.
Subscription-based tools can be expensive for startups. It’s even worse if they automate the subscriptions. They could end up paying for these tools even when they don’t need them. The best way to avoid that is by avoiding automated subscription software tools.
That will save a startup a lot of money because it’ll only subscribe to tools when necessary. It can use free tools where necessary. Also, it will help avoid mistakes like subscribing to software when it doesn’t need it. Such expenses are avoidable, but most startups pay them.
We have mentioned two major ways to go about this. First, the startup should identify the unnecessary software it’s subscribed to. It can consider using free plans instead. Second, it can consider the tasks that don’t need automation and handle them manually.
Keep the Day Job
Startups require a lot of time and attention. If not, they may start to decline and eventually fail after some time. One mistake startup owners make is resign from their jobs to focus on the startups. It is advisable to avoid getting into such temptation.
Once owners focus on a startup fully, they become employees. They need to pay themselves using the profits they make. This can be tricky if the startup isn’t making enough revenue. Owners won’t pay themselves enough to cater to their daily expenses.
With time, the owners may start spending the capital invested in the venture. That’s why it’s an excellent idea first to keep the day job if a startup isn’t on its feet yet. Owners can create time to focus on building it when they are away from their day jobs on weekends or off days.
This means that they will be earning from their day job. Thus, there’ll be no need to pay themselves from businesses that are still growing. Going part-time on the startup will allow it time to grow before it can sustain its owners.
Owners can find low-cost solutions if their startups need attention when they are away at work. For instance, they can have family members check it out. This will work best if there are adults who stay at home all day. Or, it could be a viable idea if they have spouses who work on shifts.
They can help give the startup the attention it deserves when owners are away. In the end, it will be easy to grow the business. But that’s not to say a startup owner cannot resign from their day job. It won’t be a bad idea once the startup grows and can pay its employees.
As said earlier, startups may not have enough money to purchase everything they need. Finding alternative ways to acquire necessities is vital. And one of the best ways to do it is by barter trade. A startup can find the products and services it needs by exchanging them with what it has.
For instance, let’s say a startup offers website design services. But then, another company that offers ad marketing that it needs is in dire need of a website. It can help the company build a website in exchange for ad marketing services. It’ll be a win-win situation in the end.
There are various ways to get into such agreements. First, owners can join groups where various businesses are looking to barter on products or services. A simple search on social media or search engines will help. They’ll find several companies ready to exchange a product or service.
Second, they can find companies to barter with manually. Owners can talk to business owners about the products or services they offer. Make it clear that they would like to get paid using another product or service. This will help them find such opportunities and save money for their startups.
Also, a startup owner shouldn’t forget to write down and sign agreements for barters. They should also keep track of the transactions they complete using such a model. Last but not least, ensure they should report such transactions when paying their taxes.
There’s no doubt that savings can influence a startup’s finances. As a startup looking to gain financial stability, the tips shared above will be helpful. A startup can fail even with adequate revenues. It’s all about how owners manage their expenses and save.
The small savings they make will have a massive impact on their finances. We all know why it is important to live within our means as individuals. Startups, too, should operate within their means. So, owners should start by tracking their expenses to find the loopholes.
Then, seal the loopholes by finding ways to save. For instance, we have mentioned why using tech tools to boost savings is vital. An example is using recruitment solutions to add talent to their teams.
The recruitment process can be lengthy and costly. Using software can help startups save a lot of resources. They can cut the time spent hiring and the number of people they hire to their HR teams.
Also, the other tips shared in this post are worth implementing. It will be an excellent idea to identify where to start. Owners should analyze their startup’s expenses first, then craft a clear plan to save them money.
They can manage expenses, apply for grants and sponsorships, and keep an eye on receivables. They can also take advantage of discounts, run virtual offices and avoid long-term hiring. Lastly, startup owners can save money fast if they retain their current jobs as they start with their business. These and many other expert ideas can save any startup money.
It should start by owners setting a goal that they would like to save for. Make sure that these goals are specific and attainable within particular timeframes. Then, determine how much they should save to accomplish the set goal. Finally, they need to identify areas they can save on, whether product purchases, subscriptions, etc., and then start gradual saving.
Yes. Startups can save a lot of money on their initial spending. Without a doubt, the expenses when starting can be high, but owners can reduce them if they are creative and resourceful enough. For example, starting to work from a virtual office instead of renting space helps save on initial spending.
Startup owners can raise money through donors and sponsors. Or, they can offer pre-orders on their merchandise to people close to the business. Offering discounts for the first few orders will also help in raising the startup’s initial capital. A pre-sale campaign can help raise a significant amount of money if the startup owners run it well.