2014-12-18 12:43:19Financial ManagementEnglishStartups with small budgets need to cut spending and ensure sustainable growth. Here are 4 ways to manage your startup budget and limit...https://quickbooks.intuit.com/r/us_qrc/uploads/2014/12/2014_12_16-large-am-is_your_startup_overspending.pnghttps://quickbooks.intuit.com/r/financial-management/is-your-startup-overspending/Managing a Startup Budget to Avoid Overspending | QuickBooks

Is Your Startup Overspending?

5 min read

It’s no secret that most startups are strapped with a limited budget. As a result, the success of a new business venture depends in large part on the owner’s ability to scale at the proper rate.

Referring to a business’ capacity to grow in performance or efficiency, scalability affects the speed at which your startup can rightfully add employees, products, facilities, supplies, etc. With a recent PCWorld article stating that 70% of tech startups scale too soon, entrepreneurs would be wise to evaluate all the ways in which they’re spending their money and pinpoint areas of the business where spending could be slashed.

Here are a few of the most common ways in which new businesses tend to overspend.

Supplies and Vendors

Most businesses require certain supplies to operate efficiently. And while you may be tempted to spend money securing the latest technologies to impress clients and investors, experts caution against overspending in this area while your business is in its infancy. Instead of purchasing the newest software and technology, consider utilizing free software to facilitate operations.

For example, Skype and Google Hangouts are good resources for free video conferencing. Hootsuite offers limited social management tools for free. WordPress, Wix, Drupal and others offer free content management systems. Insightly has a free customer relationship management system, and so on. There are many other free, “freemium” or free-trial software that smaller enterprises can use as they grow. This will help the business operate more efficiently, save costs on budget and allow the company to fully evaluate the software before making the investment in paid suites.

By purchasing only the essentials, you can concentrate the majority of your financial efforts on creating a profitable business.

Additionally, your startup can save money by negotiating more favorable contracts with its vendors.

Before you begin to discuss terms, do your research to determine the wholesale prices of the products in question, as well as what other nearby vendors are asking. In some cases, offering to buy in bulk can motivate the vendor to lower their rates. You can also ask the vendor to cut prices in exchange for paying early or putting down more money upfront. Finally, impress upon vendors that you prefer to work with one company for the long haul. By suggesting that you want to develop a long-term relationship with vendors, you can increase the odds of getting a great price on your orders. 

Employees

The success of your business depends in large part on the people who work for you. With this in mind, many startup founders make the mistake of prematurely hiring too many specialists. While financial officers and system administrators have a great deal to offer, most entrepreneurs in early startups can’t afford to pay these professionals their rates.

To lower spending, new businesses should limit managerial hierarchies and utilize freelancers when appropriate. While you may pay a higher hourly rate for a freelancer than a full-time employee, contractors tend to be more experienced, meaning they require less management and even less of your valuable time. Writers, designers, software developers and marketing experts are just a few of the roles that many startups hire on a freelance basis in order to cut spending. Additionally, freelancers can work out of their own homes, saving you money on office space and other resources. 

Office Space

When you’re launching a new company, the temptation to purchase shiny new office space can be enticing. And while you may think this will lend legitimacy to your startup, the truth is that owning office space can be a serious drain on your resources. In fact, a recent Entrepreneur article indicates that office space averaged $23.23 per square foot in 2013.

If your startup is in its early stages, you can save a great deal on rent, utilities and supplies by running the business from your home. By reducing your overhead costs, a home-based business allows you to reinvest revenue into the company instead of facilities. As an added bonus, you and your employees will likely be happy to save on the costs of commuting to work every day.

Of course, some businesses require a retail space or office to operate effectively. To minimize costs, consider joining forces with another small company to rent a shared office. You can split expenses and utilities down the middle, and even go in together on office supplies and furniture.

Advertising and Design

As a startup owner, you are proud of your new business and want to do everything in your power to promote your products and services. And while it’s essential for new businesses to find clients and customers, many entrepreneurs make the mistake of overspending on advertising and design services.

Instead of hiring that top-rated design agency, consider performing some of your marketing efforts in-house. By developing your website and improving your social media presence, you can reach your audience without spending a fortune. As an added bonus, startup founders who perform some of their own marketing have the opportunity to gain valuable insight by directly interacting with their customers.

Another reason not to overspend on advertising is that your startup may have trouble keeping up with the demand if you reach out to too many clients. But by scaling your advertising expenses appropriately, you can ensure that your startup grows at a reasonable and sustainable pace.

These days, startups are struggling harder than ever to secure necessary funding. As a result, entrepreneurs must take pains in determining how they spend their hard-earned cash, as it can have a big impact on long-term growth. In fact, a recent report reveals that 93% of startups that scale too soon never exceed $100,000 per month in revenue. By limiting how much you spend on the aforementioned business processes, you can keep your new venture firmly in the black today while ensuring a brighter future for tomorrow.

Cloud Operations

You’ve taken care of materials, employees, physical space, and marketing. Now move what operations and infrastructure you can to the cloud. It may sound scary and feel daunting at first. But it’s actually the most cost-effective and scalable way to grow your business. Take employee time tracking and payroll for example.

It can be hard to coordinate freelancers from different corners of the nation or the world. Imagine how much easier it would be if they could clock in and out on any device, from anywhere, on the same system. When it’s time to run payroll, just sync their time cards with your payroll software to reduce administrative costs. A cloud-based solution can also help you comply with federal and state recordkeeping laws.

With on-premise equipment, there will be hardware, software, and installation assistance. Not so with cloud operations and infrastructure. That precious data your business needs? It’s recorded, stored, and backed-up automatically and securely. Being in the cloud also gives you real-time visibility on your workforce and performance, which are vital for decision-making.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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