When you first think about creating your startup, one of the first things you need to focus on is the costs associated with developing and operating your business. This is critical to the success of your startup because expenses can get out of control if you are not too careful. The money that you have spent unwisely is money that could have been used to accelerate the growth of your business.
You will not produce a successful business if you are spending too much money on things that do not produce value for your business like the best software, swanky furnishings for the office and elaborately embossed name cards. Aspiring entrepreneurs need to recognize this fact because they tend to focus on having the best without being the best first. This is counter-productive because you are spending money that you can not afford to replace at this stage of your business.
As a new startup, you need to be focused on reducing your costs so that you can maintain a healthy cash flow in the early stages of your growth. Most profits will be pumped back into the business to increase production, improve services and kept as a reserve for the various possible contingencies that may arise while you are fine-tuning your Unique Value Proposition (UVP) IN THE increase your profits. Earning profits is very important if you plan to grow your business. The making more money approach is not feasible because you will be chasing money to cover your costs, instead of being focused on providing value to your customers. This leads to you rushing the growth process of your business because you are too worried about not having the money to continue your business operations.
You eliminate this issue from happening by implementing cost-effective measures that lead to you operating a profitable business at a cost that does not make you have to desperately chase after money. If you like to know how to reduce your startup costs, continue reading to learn how.
1) Set your Priority Expenses
Create a list of all your expenses. After you create this list, you will need to prioritize your list from most important to least important. This will help you focus on the expenses that are immediately needed to operate and develop your startup while holding off on the others that will not make an immediate impact. Expenses such as on office location are not required in the very beginning when you can work out of your home or a local coffee shop. A computer, internet connection, and the phone will give you everything that is needed to start a business in today’s world. An office is just overhead that is not bringing you a return at the moment. Expenses such as product material, marketing material, and advertising are what you need to focus on in the beginning in order to grow your startup into a fully functional business.
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2) Purchase Second Hand Office Furniture and Equipment
It is advisable to avoid the overhead costs of an office unless you are operating a business that requires a storefront location to be operational. In that case, you will not need the best quality furniture to make a good impression. While these things look nice, they are too expensive for you to be spending your money on when you could be investing into other areas of your business. Buying used furniture and equipment works just as well. Unless you are on Wall Street, people are not necessarily paying for the wealth image you portray. What they are paying for is the results that your startup can produce. Therefore, focus on solving your customer’s problem, rather than trying to come off as a wealthy business owner.
3) Negotiate Prices
You are operating a startup. This means that you will need to become great at negotiating prices in order to get the best terms that do not make it hard for you to operate your business. When talking with your vendors and suppliers, try to come to terms that satisfy both parties. After all, they need your business as much as you need their services. As long as both parties are presented with a win-win situation, it should not be a problem to negotiate a deal that can be satisfied with no problems.
4) Make Deferred Payments
As you are growing your startup, the payments that you are receiving from customers may be coming in slow as you continue to build your customer base. Therefore, you may not sufficient cash on hand to pay for products and services that are delivered by your vendors. This is why you should request to make payments after the delivery of the products. 30-day deferred payments should be enough time and granted by your vendors if you are able to provide proof that the payments will be handled with the 30-day timeframe. Proof would be payments being made to you from your customers.
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5) Offer Discount Opportunities
This a strategy that should only be utilized if you know how to do it in the right way. While offer discounted products and services to boost sales will help you bring in revenue, you do not want customers to get use to discounted prices. When customers get used to discounted prices, they are unwilling to pay your regular prices and certainly not higher prices. This is why it should be communicated that your discounted pricing will only be available for a short period of time. You want your customers to focus on the value provided by your products and not the discount being offered. You should also see if you can purchase from your vendors at a discounted price. Maybe buying a large quantity or purchasing product when they are dealing with a slow period of business. This is when your negotiating skills should be put to use in order to get the best offer that helps you save money.
6) Ask for Trial Periods
There will also be other startups that are trying to attract as many customers as possible to grow their customer base. Usually they will offer free trial offers in order to entice people to give their product a try. You should take advantage of such opportunities because it will help you to drastically reduce your operating costs. The more expenses that you can reduce. The more money that can be allocated towards marketing and advertising to grow your own customer base.
7) Share your Office Space
If office space is a must, do not take on the expenses of rent an office location by yourself. Try to attract other startups and small business owners to share the office space with you. If you have 3-4 different offices, that is 2-3 other startups that could be within that office sharing the costs of maintaining that office location. If you do not want to go that route, you can always join your local co-working office location. You can share office space with other startups that are focused on growing into successful companies. This will help you reduce your costs and network with other ambitious entrepreneurs at the same time. The connections that are made from such locations can lead to opportunities that could have never been brought to your attention without putting yourself in this environment.
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8) Reduce Communication Expenses
There are so many free tools available today that allow you to communicate for free or practically no significant cost. Email is completely free. If you want an email associated with your business, it will only cost $5 using Google Gmail services. $10 at most if you want the enhanced professional version. Tools such as Skype, Facebook, and Whatsapp are all free and help you quickly communicate with your customers and suppliers without incurring costs for telephone services. This is especially helpful when you are trying to reduce as much costs as possible in every facet of your business.
9) Hire Interns
Growing a startup into a fully functional business will require you to have many different business functions operating at one time in order to produce the desired results. That problem that exist is that you are just one person — you cannot possibly do five different things at once.Therefore, you will need to hire interns who are willing to work at a reduced wage in order to gain the credits needed for their school and gain the experience needed for their resume. This is very helpful because hiring full-time employees is very expensive — an expense that cannot be paid for when you are barely making enough money to pay yourself at the moment. This is why you should use interns to get the small work done that is needed to produce big results. While they are focused on working in your startup, you can focus on working on your startup.
You will need to focus on reducing your costs as much as possible if you want your startup to grow quickly, instead of being held back due to having so many expenses that reduce your available capital. As a startup, your main focus needs to be on quickly acquiring customers and improving the products or services you offer. The less expenses you have to deal with, the more that you can focus on doing just that. Remember, there are people operating million dollar businesses just using a computer and telephone. There is no reason why you cannot do the same.
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