Tips to Reduce Expenses as a Fledgling Startup
Beginning a new business can be thrilling for entrepreneurs. With so many things to do and plenty to look forward to, most things boil down to having a budget. If the budget is stretched to its limits, keeping a tight rein on your outgoings isn't just wise but key to the company's longevity.
Entrepreneurs juggling the accounts books alongside business expansion is akin to tiptoeing through a fiscal dilemma. Every penny you hold onto can power the engines of innovation and growth that are the lifeblood of your new venture.
Therefore, managing your startup's finances goes beyond tightening the budget or preparing for challenges. It requires tapping into different channels to make it a sustainable startup with careful planning and smart strategies to reduce unnecessary expenses effectively.
Here are four practical tips and quick how-to hacks to lighten the financial burden on your growing business.
#1. Embrace lean operations
Getting to grips with your costs means diving into the nuts and bolts of your startup. It's about taking a good, hard look at how you do things and asking, 'Is this necessary?' or 'Is there a smarter way to do this?'
For starters, look at your daily grind and pinpoint the bits that aren't pulling their weight. There may be a corner of your office just collecting dust that you can offer to someone on rent. Or there may be certain tasks that need automation, so why not invest in the software to increase efficiency?
Integrate sales enablement tools: Leverage the platform for sales enablement to automate and digitise repetitive sales tasks. These tools significantly enhance your sales team's performance by providing the resources and information needed to engage effectively with customers. While there may be initial costs associated with using such tools, the long-term benefits include a boost in sales productivity and reduced time spent on administrative tasks.
Implement process improvements: Identify the non-value-adding processes to re-engineer or streamline them. This involves blending steps, changing the sequence, or eliminating unnecessary procedures for faster turnaround.
Automate and digitise: Evaluate the repetitive tasks and workflows to automate the same using software. True, there may be some upfront costs with technology investment, but this may offer substantial savings in time and human resources.
Conduct a value stream analysis: Map out all your steps to deliver a product or service tailored to your customer. Check for steps that do not add value from the customer’s perspective and aim to reduce or eliminate these.
Utilise KPIs: Identify and regularly monitor KPIs that accurately reflect your lean operations success. Pin down the metrics that showcase the efficiency of your lean approach on how much you're cutting down on waste, whether your day-to-day tasks are zipping along more smoothly, and crucially, if you're managing to keep more money in the business.
#2. Negotiate with suppliers
Never accept the first price a supplier gives, as there’s often room for negotiation. As a startup, every supplier you engage with is a relationship you can leverage. Be transparent about your status as a new business and your intention to grow together. Suppliers are often willing to offer discounts to companies that can demonstrate the potential for long-term partnerships.
Also, consider bulk buying for items you’re sure you’ll use over time or looking into trade credit options that can defer payments to ease cash flow constraints.
Here are a few things to consider when negotiating with suppliers.
- Build a rapport: Create a positive relationship with your suppliers, who are more likely to negotiate favourably if they have a good relationship with you.
- Be transparent: Communicate your position as a startup and discuss your growth plans. This is where suppliers can provide better rates if they see the potential for a long-term and expanding relationship.
- Consider bulk purchases: Leverage technology to forecast your usage and try to bulk buy that significantly reduces your per-unit cost. Ensure you have the storage capacity and the items have a long shelf life.
Ask for samples or trial periods: When considering a long-term contract, ask suppliers for a sample or a trial period to test the quality of the product or service.
#3. Outsource non-core activities
Carefully assess which tasks are essential to your core business offerings and which are ancillary. You can consider outsourcing non-core business activities like accounting, marketing, HR, and IT support.
With outsourcing, you can access expert services without incurring massive overheads associated with full-time staff. You’ll scale services to suit your current business needs and budget to ensure you do not overextend financially on functions that don’t directly generate revenue.
You can consider the following before outsourcing your business functions.
Identify core vs non-core activities
- Start with an in-depth analysis of your daily operations to determine which activities are core to your value proposition. These tasks directly contribute to your product or service delivery and are central to your business identity.
- Classify other tasks as non-core. These tasks are typically administrative or supportive and do not require deep internal expertise or are separate from your unique selling proposition (USP).
Understand legal and compliance implications
- Steer clear of any possible legal and compliance requirements related to outsourcing in your industry. This is true because it involves sensitive data such as customer information or intellectual property.
- Keep confidentiality and non-disclosure agreements in place to protect your business's proprietary information.
Manage the outsourcing relationship
- Set clear expectations and KPIs to measure the performance of your outsourcing partners and ensure they meet the agreed standards.
- Be prepared to invest time in the beginning. This goes into onboarding them effectively so that they fully understand your business processes and expectations.
#4. Capitalise on tax efficiencies
Navigate the complexities of the tax system to uncover numerous opportunities for savings. This includes structuring the business in the most tax-efficient way, such as using an Enterprise Management Incentive (EMI) scheme to offer tax-efficient share options to employees instead of higher salaries.
Moreover, startups should consider exploiting Research and Development (R&D) tax credits if they work on innovative projects. For more, engage with a tax specialist familiar with startup finances to ensure you get all the incentives and benefits.
Utilise tax reliefs and credits
- Scrutinise all available tax reliefs that your startup may be eligible for. For instance, if your startup is engaged in innovation, you may claim R&D tax credits, which can reduce your tax bill or result in a cash payment from HMRC.
- If you’re a small or medium-sized enterprise, look into the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS), which offer tax relief to investors who buy shares in your company.
Consider employee share schemes
- Implementing tax-efficient employee share schemes like the Enterprise Management Incentive (EMI) can provide a valuable incentive to attract and retain top talent without immediate cash outlay. Also, this offers tax advantages for both employer and employee.
- Ensure you meet all the conditions set out by HMRC to qualify for these schemes, as non-compliance could result in significant tax liabilities.
As we draw this close, let’s keep it simple: running a profitable startup is as much about the pennies you save as it is about the risks you take. Therefore, following all the above-mentioned tips can go a long way in saving crucial money that goes into the foundation of your business.
While we have also covered ten tips for entrepreneurs to save money, blending the above can help plummet expenses and allow the business to grow further. It's an investment in your business's future, the kind that keeps on giving as your company grows and changes. Keep returning to these strategies, tweak them as you go, and they'll serve you well on the journey ahead.