Watch the costs and the profits will take care of themselves
– Andrew Carnegie
A quote from Carnegie, the iconic Scottish-American industrialist credited with leading the American steel industry, and its success, in the 19th century. He went on to become one of the richest Americans in history and a philanthropist in America and in the then British Empire. He gave away what equates to today as $65 billion during the last 18 years of his life – around 90% of the fortune he amassed. Carnegie’s ethos, one shared by many successful business icons of today and before, should be a mantra for entrepreneurs. But, how to achieve a low-cost, high-profit business? Or at least a business that is frugal and cost-controlling in a commercial world that often features spiralling product and service costs.
How to keep the costs down when starting a business
There is a temptation to have the beautiful office or store, the high achieving but expensive team, or enough stock to meet the biggest demand run you might face, from the outset. However, entrepreneurs must resist the urge to invest unnecessarily, leaving a nascent business free to turn profit early and adapt when learning from outset challenges.
Don’t be tempted by non-essential office items
When planning equipment, stock purchases, premises or staff, it’s important to assess whether your purchase is essential to your business function. Can you make do without it, at least initially, without impacting on production, sales or business opportunities?
Though it may feel almost defeatist, renting equipment rather than buying equipment can be a good way to limit initial high-capital expenditure. It’s not defeatist, it could help you manage costs while learning more about your business, customers and industry. Renting equipment could allow you to upgrade to better machinery faster than your peers. Or, what if you find the product you are producing has less market than you expected. But, that a different product that needs alternative equipment has a far better chance of success. Renting equipment means you can change out a production line quickly. Renting a premises means if one doesn’t work it may be perfectly feasible to close and move to a better location.
It may also be possible to borrow equipment or purchase second-hand equipment.
If items or expenditures aren’t absolutely essential at the outset, plan them as purchases after certain sales or profit targets are reached.
Whilst there are sacrifices and compromises you can make to keep your startup costs down, don’t be tempted to cut quality for price where it really matters such as with product or service quality.
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Renting commercial property, or even purchasing a store or office, can significantly hike your early expenditure. Think about your business needs, and the difference between making a loss and making a profit.
Can you make do working from home for the moment? As you grow there are options to expand your business space and with a little creativity you can continue to keep office space costs down. What about renting a desk or two in a coworking space which gives the added benefit of networking with likeminded entrepreneurs?
If you are considering a store or similar physical presence is there another fledgling business that compliments your own that you could share space and rent costs with? Even another manufacturing business might consider sharing space, equipment and therefore costs with another business that’s not in direct competition. It’s well worth investigating.
Don’t be tempted to buy large quantities of items to start off with – place small orders – conserve time and money and keep focused on what you need right now. Though you may save money in the long term buying certain equipment in bulk, how long will it take to use this equipment? How quickly will your stock sell, really? And, what happens if you need to change up your business in response to a changing market or low demand. Choosing to run with less initial outlay could give you the freedom to react or innovate without being stuck with high costs, unused equipment, and unsold stock.
When thinking about daily running costs, what can you do yourself at the moment? Do you have a printer at home you could use for the time being? If you don’t need to be on the phone constantly at the outset, would using your own mobile work for a time?
Keeping people costs down when starting a business
Hiring the right people at the right time is critical for turning a startup into a success. It might be reassuring to have someone keeping track of sales, or planning your time and meetings, but ask yourself at each stage whether you can do it yourself.
When it is time to hire people, make sure you get the right people with the right skills. Is a hire a definite permanent need or would working with a freelancer or two save on business expenses without a long-term commitment? Hiring freelancers saves on national insurance, pension contributions, sick pay, and holiday pay. And, often freelancers can hit the ground running due to their experience of working with many different clients and industries.
If you decide to hire permanent staff, look at benchmark salaries, but remember there are other incentives that work well too, such as flexible working, baseline salary with a performance related bonus, option to work from home, holiday allowance. You could offer employees their birthday as a day off. Be creative, unique benefits often attract and retain loyal personnel.
When you do hire, make sure that communication and feedback are strong – acknowledgement, praise and passion are great people motivators and result in loyal staff who will work hard for your goals.
Marketing and promotion
There’s no doubt, marketing and promotion are vital at the outset for most businesses. However, it is important to consider whether you’re ready to start spending on marketing. You could test the market through ‘free’ marketing channels. What about word of mouth, emails sent by you, SEO and social media, networking and events, trade shows and starting conversations.
If you haven’t done any sales and marketing before it may seem daunting, leading you to consider hiring an expert immediately. Skilled marketers can be expensive, though they do have their place. As an entrepreneur in the early startup stages your motivation and enthusiasm for your own business can be a great sales and marketing tool. No one knows, or believes in, your business more than you at this point. So, it’s well worth learning a few marketing, online marketing and sales techniques and platforms and giving them a whirl yourself.
Make sure you’re always bartering on any marketing costs – for example you might be able to exchange a relevant piece of content or news on your product/service area in exchange for some business exposure in an online publication or a relevant social media page/channel. Contact sites for whom your product or service is relevant but not in direct competition and discuss how you could mutually benefit one another, for example.
Consider your funding options
Bank loans and business credit cards, whilst often a quick way to get the money you need for your startup can prove problematic down the line when payments are due, particularly if you’ve yet to get started really selling your product/service. Consider your funding options and limits carefully and make sure you can make repayments.
Building your website
Again, for most of today’s businesses a good website is essential. If your business is primarily online then an excellent, user-friendly website is absolutely critical. A good website is money well spent, but shop around, the right freelancer might be far less expensive than using a boutique website design agency. If you are confident in your technology skills, building your own website using an online platform such as WordPress could be an inexpensive route for you.
Make sure your website can efficiently fulfil any of the required actions of your business – such a buying a product, or booking a follow-up, this is imperative to getting your business off the ground. A poor experience can put customers off permanently.
Your website may be the only ‘window front’ to your business so it’s important that your branding, as well as site functionality, is solid.
If you do employ a freelancer to build your website, make sure you have back-end access and own all elements of the site.
“Don’t get lured in by the shiny BS that’s out there. When I was looking around for offices, I ended up going for one a little bit out of the city centre – not a great area, but a cracking little office with free car parking space. On the other hand, a close friend of mine signed up to one of the swankiest offices available in the city centre. My office was £325 per month and had enough space for about 4 people. His office was £900 per month and was slightly bigger than a shoe box. He didn’t even have a window!
He tried to reason that it’s because he needed a city centre location to ‘attract talent’ but fast forward a few years and he still hasn’t hired anyone, so that’s a hell of a lot of money wasted on vanity! Sense check your spend at every step. That money could be better spent on growing your business”.
– Eddie Whittingham, FounderRead more
Take these habits forward with you
Good budgeting and close cost monitoring, even a healthy dose of frugality are great habits to take forward. As you grow, continue to review and analyse your costs, compare rates for your utilities for example, and review the effectiveness versus the cost of services you are using.
Take every business cost and analyse it, decide whether it’s a future purchase, or an essential one right now.
Check out our other articles for more tips, tricks and advice to help your startup succeed.
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