How to keep start-up costs down
Spiralling costs have been the kiss of death for many great business ideas. Here are some top tips for keeping your start-up costs low – without cutting corners
As a start-up entrepreneur, several factors which could determine your success and failure, such as market fads and economic fluctuations, are outside your control. But every business, no matter what its size or age, can control its costs; there’s no reason why you can’t monitor every single pound your company spends.
As your business matures, planning all your different costs can be tricky. So, to give you a helping hand, we’ve analysed each of the major areas of a typical start-up business – and sought advice from a team of entrepreneurs on how to achieve cost efficiencies in each one.
Funding and investment
The cost of borrowing provides a major headache for businesses everywhere. Credit is seemingly becoming more expensive every month, and the terms attached to loans and mortgages remain prohibitive for many entrepreneurs.
Thankfully, there are several options you might consider in your attempts to secure cheap, convenient finance. One of the most flexible is raising finance from friends and family, often involving repayment terms far more favourable than a traditional lender’s.
Geoff Morris, chair of the Entrepreneurs’ Forum, is a strong advocate of this approach: “You need to make very best use of money from friends, family, and the inevitable fool. Borrow from them at interest-free rates for as long as you can.”
Of course, tapping your loved ones for funding could place a strain on your closest relationships if your business does not take off as quickly as planned, so as with any business deal, it pays to weigh up the risks involved.
For more information on alternative sources of finance, visit our article on 10 ways to fund a business without a bank loan.
Offices and meeting space
A glamorous office might generate a ‘wow factor’ among visitors; however, it may ultimately prove a luxury, rather than a necessity. According to Geoff Morris, as a start-up entrepreneur, “you should try and stay in the garage or bedroom as long as you can to keep real estate costs down, or find an incubator space where the office costs are relatively low. Quite a lot of people get into trouble spending too much on their office accommodation too soon.”
If you think a genuine office is essential for your business, you might consider alternative ways of hiring space – as all manner of arrangements are available.
David Gordon, founder of DG Law, told us that “clients and suppliers may offer shared office space on flexible terms. There are plenty of businesses out there who would be delighted to get their own fixed costs down, so a little extra income – even if it’s offering a postal address and someone to answer the phone – can be set up.
“Don’t necessarily look straight at Regus or some other serviced office. Generally, with service-oriented companies, clients and customers care more about the quality of the service than where the back office is located. After all, didn’t James Caan set up in a broom cupboard?!”
Before you begin kitting your company out, you need to think carefully about exactly what you need. Each business has its own unique requirements, and there’s no point buying equipment that’s superfluous to your business. To prevent overspending, start by making a list of all your company’s key functions, and then work out what equipment you need to perform each task. This will ensure that you only invest in tools which are essential to your company, and keep kit-out costs to a minimum.
Next, think about the best places to source these items. Make sure you rent and lease whenever you can, rather than purchasing outright; this gives you freedom to chop and change as your business evolves. Also check out what can be bought second-hand and whether there are special online markets or exchanges for your particular sector.
However, while you should always look for good value, never be tempted to go for poor quality – especially for items that directly determine the quality of your product or service – as this is likely to end up being a false economy.
David Gordon says that, as a start-up entrepreneur, you need to “analyse really critically why your customers will be buying your products or services. If it’s critical then yes, add it to the start-up budget. If you can get away with it, share, borrow and lease until you are up and running with cash flow.”
If you want to grow your start-up, you may well have to increase your staff base – but there’s no need to drive costs through the roof in doing so. With an array of freelance sites, such as PeoplePerHour and Freelancer.co.uk, advertising the services of freelancers around the world, it’s possible to source high-quality labour on a temporary basis without great expense. Saif Bonar, UK manager of Freelancer.co.uk, said: “At a time of economic difficulty, the internet presents an underused opportunity for many UK-based small businesses. With millions of people coming online in the developing world and looking for jobs, outsourcing tasks via the internet has never been easier or more affordable.
“Employing freelancers also has other benefits, with business owners avoiding the need to pay National Insurance or employ individuals for longer than it takes to complete a task.”
Alternatively, you may wish to take on interns and work experience students, eager to gain experience and prepared to work for little or nothing in return. Some full-time staff may even accept stock options, in lieu of pay, while your business gets a foothold.
Marketing and promotion
When it comes to marketing, there are myriad cost-effective avenues you can explore. Email, for example, can be used to alert potential customers to new products, promotions and business news – you can often get your hands on an address list for little or no charge, if you speak to the right people. (However, always ensure you have permission to contact people first – read our guide on how to use email marketing here.) You could also create a Facebook fan page to build a following and create hype, and establish LinkedIn and Twitter profiles if these resources suit your business.
If you have to pay for publicity, make sure you negotiate; rate card prices are never set in stone. Likewise, is there scope to offer your products or services to the media owner in return for advertising space?
Tammy Butler, a seasoned start-up employee who now works as marketing manager of Prime Group, told us that start-ups should barter at every opportunity. “Speak to the magazines/publications you may want to be in and get them to write an article – non-salesy – to go alongside any advert you may book.”
As an ambitious start-up, it’s crucial that you offer an effective website, capable of handling customer enquiries and amplifying your core brand strategy. But you don’t need to hire an expensive web developer to do it. Several companies, such as Moonfruit and Basekit, offer low-cost do-it-yourself web-build kits; Basekit charges its start-up customers as little as £6 per month.
You can also minimise costs by mastering simple web development tasks. Tammy Butler advises: “Make sure you have access to the back-end. It’s quite easy to use most website administrative areas to do things like update text, add photos or modify products and services.”
To boost your website’s search engine ranking, you might wish to make a list of all the keywords you would use if you were a client or competitor looking for your product or service, and inserting as many of these keywords as possible – there’s really no need to fork out a fortune for an expensive web development company at this stage of your business’ life.
With each of the cost areas outlined above, it ultimately boils down to attitude. If you treat each penny that leaves your business as your own, and analyse each expense before you commit to it, keeping costs down should be a relatively straightforward task. If you want to make it big in the business world, you have to start off thinking small.