Cost cutting measures for startups in 2019
This article gives practical cost cutting measures for startups to take in their first year of business. The first year of a startup business can be the fiercest. Between (1996 and 2017) about 60% of new businesses failed in their first four years, according to research done by the Bureau of Labor Statistics.
But your business doesn’t have to follow this trend. If you can manage your finances well and cut down business costs you can create a good money buffer to scale you through and beyond the first year of business. To learn how to cut costs in your startup business, read the following eight cost-cutting measures for startups businesses.
1. Missing or Wrong Team Members
According to CB Insights, 23% of startups don’t succeed because they don’t have the right workers. Low motivation, lack of specialized skills and disharmony sink a startup almost as fast as a cash flow problems.
When hiring, startups have to look also look out for workers with a focus on the right roles to be employed in, having creative mindsets, and has the ability to work independently. If you lack strong accounting abilities as the CEO, employ an accountant to fit into that position. Entrepreneur contributor Sujan Patel explains,
“A good CFO or accountant can save you more money than you’ll spend on them. They hold you accountable for spending and help you plan your investments and understand your return on investment.”
2. Incorrect documentation of expenses
One of the crucial cause startups fail is because of poor business planning, including ignoring to document and track initial startup expenses. Unavoidably, small business owners end up strapped for cash.
The problem becomes worse from there because the business is less than a year old, the owner has a few financing options to draw from. This may further hamper the company’s cash flow and ability to thrive to make a profit.
The solution to this problem is to document your expenses in a holistic business plan. While online business costs would be different from a normal brick and mortar business.
Some expense types apply generally to all which are: equipment, insurance, financing, research, advertising, technology, wages, etc. If you forget to record an expense or disregard it, you may reduce your business’s chances of making it through the first year.
3. Handling Marketing In-House
Almost all online business owners include marketing on their budget sheet. They may either scrimp on funds or try to do all the marketing work themselves.
However, even an owner with excellent marketing skills needs to get other things done to keep the business on track and the marketing campaigns and sales funnel may fall to the wayside as a result.
Simon Dlugowski, the founder of MySocialNerd, recommends that startup owners should outsource their marketing in the same way they do with their legal and accounting services.
“If you would not hire and facilitate a full-time lawyer, why should you do it with a marketer?” asks Dlugowski. “Should it be for search engine optimization, branding, or social media management, there are corporations with a staff of experts who can service your business for half the cost of an employee.”
4. Purchasing the Wrong Type of Internet
Business owners obviously require fast and reliable internet access and this is irrelevant of if your business is based online or in a physical location. But some business owners think to save on cost they purchase residential internet package rather than a business internet plan.
To be frank, this decision usually comes back to haunt them in terms of lost opportunities and decreased productivity due to having a poor internet connection.
So before you make a decision as to the internet package to purchase, do some research and buy the right type of business internet for your business would need.
If you have remote workers, you would need an internet plan that secures endpoints of your staff members and their devices. If you’re also using Amazon web services or Azure to store and manage data, you would most likely want the highest speeds available. A very good internet connection type to go for is a fiber-based internet.
5. Paying for Every Tool Imaginable
“You get what you pay for” is a normal slogan for business owners. Some business owners have negative thoughts on the use of free tools. However, paid is not always better than free, especially for the early stage of a startup business.
Having to pay for everything restrains cash flow and can be a major problem if you want to be in business for the long term. Sarah Hewitson, the co-founder of Neatly, a data-reporting platform for the small-medium enterprise, says,
“Despite the reputation that free tools can get, they’re not all bad. Of course, there are the obvious ones like royalty-free images and the free version of MailChimp, but there also are free tools out there to help with HR, invoicing, and time tracking.”
If you want to thrive as a startup, you have to reduce costs as much as possible and be accountable for every expense. Always look at the budget and determine what expenses can be cut or minimized.
Then, combine those data with the information you have gotten above to keep your startup healthy and growing.
6. Make the most out of your space
You have to always analyze your current use of physical space. Flooding storage, too many office supplies, heaps of paper files and wasteful placement of furniture and equipment are a common space waster.
Organize the different functions and departments in your business. You can use space for different purposes. With a small amount of space available, you would need to make your office space and furniture more organized.
You can use interior dividers or folding walls to create more real estate space in your office. These design elements have to be spontaneous and can be moved around quickly to transform a space for different function and occasions.
The interior dividers can be used to separate workspaces between employees. Once these dividers are removed, the larger space can be used as space where several staffs can work on a project together.
7. Maximize your employees’ skills
As a CEO you have to always know and asses the current usage of employee experience and skills. Give duties or roles to the employees with the most skill and efficiency in those roles. Do not use sales employees for word processing or an employee that has an idea for the design for design functions.
It is always required for one person to be responsible for a variety of projects, but you can consider exchanging some of those projects with another individual who shows greater efficiency in execution.
8. Cut Advertising Costs
Studies have shown that an average small business typically spends about 5% of its revenue on advertising. This figure can be significantly higher for service firms which are typically higher margin oriented or for start-up businesses.
With more potential customers online or leads than ever before, advertising does not always have to be high-priced. A startup can start with building a good online presence by creating an affordable website and creating a free Facebook page.
You should also tweet about your business on Twitter, and build an email list of customers also. Having quality email leads can reduce the cost of you having to advertise all the time and is one of the channels that have the highest return on investments.
Cold calling, client referrals, and having business cards are also inexpensive ways to increase your marketing profile.