The Bootstrapper’s Guide to Reducing Startup Business Expense

Ask someone who’s bootstrapped a startup – there’s nothing glorious or lavish about it. These businessmen have to think about methods of stretching their dollars and reducing expenses to a bare minimum. While your startup is in its very early stages, there will be expenses staring at you in the face, every day. You can, however, meet these challenges, and mitigate expenses by exercising the suggestions shared in this guide.

Relocate To A More Affordable Office Space

Your monthly workspace rentals are, arguably, one the biggest fixed and repetitive costs you are going to bear at least for the coming few months. That’s exactly why it’s worth undertaking the inconvenience of moving to a new office space with lower rental and related maintenance services. Particularly for B2B business, ones with insignificant needs of in-store customer interaction, and primarily Internet-focused startups, this is a smart move.

Shared workspace is another option – it’s a blossoming business model where startups can share corporate spaces on a pay-as-you-use basis. From single person businesses to startups with tens of members, shared workspace platforms offer decent options for all kinds of requirements.

Switch to VoIP or Cloud Based Communication Systems

Monthly phone bills can slowly but surely pile up, and will continue to eat away at your bottom line every month, until you do something about it. SMBs and enterprises are quick to latch on opportunities of implementing VoIP systems instead of traditional telephone lines. Increasingly, VoIP service providers have started offering scalable and affordable plans for startups, which are worth considering. Also, cloud based communication systems, such as Skype, or using a virtual phone number, can help you put a tab on your monthly phone bills. If you have a team of customer service representatives who need to attend and make a lot of calls daily, this is among the biggest cost-cutting efforts you could make.

Use A Credit Card Smartly

Sounds counter-intuitive? It might, because credit card debt is expensive. However, with some discipline, you can turn the tables, and make your credit card deliver two awesome benefits:

  • By paying your bills using your credit card one day after your monthly bill statement is generated, you get the entire month, plus the payment period, before which you need to clear the payment. (This is not for you if your credit card provider charges interest right from the day you make a payment on the card).
  • By making significant payments via credit card, you will avail ample points to qualify for heavy discounts on airfare, fuel, or will get significant cash-back benefits.

Look for a credit card with a healthy reward system. As long as you pay the entire dues in full every month, this tactic will save you money month on month.

Audit Monthly Billing Subscriptions and Evaluate The Need to Continue

Keeping an eye on monthly subscription bills invariably yields decent cost cuttings, because that’s when you realize you’ve been paying for seemingly ‘inexpensive’ services month after month, when you don’t even use them! It’s commonplace for startups to subscribe to free trial services that only start billing after a fixed number of days, and then forget about them. Make sure you cancel all such unnecessary subscriptions. Because cloud based subscription models make it possible for startups to leverage advanced technologies such as CRM, small scale ERPs, invoicing and taxation software, etc., it’s likely you’d end up subscribing to more services than you actually need.

Become a Part of Purchasing Groups and Co-operatives

Big businesses can crush you by building economies of scale, and by getting raw material and managing manufacturing in ways that allow them to create comparable products at lesser costs. How do you compete? That’s by becoming a part of purchasing groups and co-operative organizations. These organizations being together startups and small businesses to help them get essential business related supplies and services at inexpensive prices, exchange latest market news (more). By clubbing together the orders and building volumes, the purchase orders become lucrative enough for B2B vendors to offer you the same discounts and deals as they do for large enterprises. As you scale up, even a few pennies saved in a product’s landed cost will translate into huge savings.

Turn the Heat on Vendors

We mentioned a time tested formula for reducing raw material and basic supplies’ costs. Even for specialty purchases, you can do a lot. To start, make sure your vendors compete for your business. Make it known to your vendor that you are open to offers from other vendors, and are proactively looking for better deals. When a vendor senses the heat in the negotiation, it’s surprising how it is able to offer unheard special discounts to you. It makes sense to offer the assurance of continued or a long-period contract with a vendor that can take the extra step to offer you a discounted price, or an augmented product for the same price as most competitors.

Variable Versus Fixed – The Former is Your Friend

Whenever you have the room to make an expense variable in nature as compared to fixed, make it happen. It’s natural for humans to make peace with repeating events, and it’s the same with fixed expenses. You don’t want to end up locked in the loop. While designing pay packages, make sure you include performance based variable components, to the maximum extent as provided by the employment and remunerations laws in your region. Also, rent out space instead of purchasing it. In every contract, negotiate hard to keep the option of period reviews, with agreed contingency provisions.

Promote the Art of Fiscal Discipline As A Core Competency Across The Business

If things go well, your startup will soon be a recognized small business. To make sure that unnecessary expenses are avoided, nurture and cultivate a culture that values the idea of financial discipline (of course, staying away from the treacherous grounds of stinginess). Practice what you preach by not booking your stays in luxury hotels on your business trips. Make smart and money-saving behaviors known and lauded. Organize basic negotiation and financial management coaching for selected employees, especially the ones close to authorizing purchase orders and signing off checks. You would want to continue cutting on avoidable expenses, instead of making it a one-time activity.

Other Best Practices

There’s a lot more to expense management for startups; for instance, you could adopt these practices:

  • Negotiate for better rates on your credit card, and use it for business expenses.
  • Look for free and open source software to replace monthly subscription billing based tools.
  • Reduce the review and revision periods for your digital and offline marketing spends, to remove expenses in non-value adding channels
  • Seek consultation to make sure that you’re availing all tax deductions, including the preferential ones for startups.
  • Hire contractors for short term projects instead of over-staffing your startup

Final Thoughts

Any recurring expense that you can reduce or avoid will keep on bolstering up your business’ bottom line. Plus, there are several avoidable one-time and fixed costs as well. We hope this guide helps you keep your startup afloat.

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