start-up cost control

How to Control Startup Costs

There’s a lot of business theory out there, a lot of smart doctrine on defining a market, being a substitute, a la Michael Porter’s construct, or having a purpose-driven business.

And that’s great.

But if your company goes under before you have a chance to implement a long-term strategy, it will be all for naught.  A lot of businesses lurch off the cliff for the simplest of reasons—running out of cash.  This often happens for another simple reason—spending too much of it.

You’ll hear a lot of advice on getting investments, pulling in a luxurious amount of money—spend it to make it, right?—opening that  ultra-hip business with twenty-foot ceilings with exposed wood beams, twelve shiny new laptops with cutting-edge processors, etc.

But you’ll have less chance of having to shutter that hot new office if you just don’t lay out too much money in the first place.

The big office, the awesome kitchen, the ball pit for your IT department, those will all be there when your business is steady and rolling.

So, here are four concrete tips for the frugal entrepreneur to control startup costs.

1. Spend Frugally on Labor

Now, most would-be entrepreneurs, opening, say, a jewelry shop, aren’t going to hire three full-timers, a part-timer, a full-time accountant, onsite IT guy, plus a nightly custodian right away.

However, even if it’s just you and your husband minding the store, there are better and worse ways of paying for the various services you need.

Let’s start with your web presence.  The frugal approach that will lower your startup costs is to do everything you can yourself. 

Pay a tiny fee for one of the online website creation services, setting most of it up yourself, including credit card acceptance, shopping carts, SEO, etc. 

If you are in need of help and you can’t get it from a friend (or a friend’s smarty-pants teenager, right?), advertise online or locally for brief, hourly computer consulting—but be sure to google your problem first.

Follow this mindset for everything you’re considering paying for. Can you invest some time and possible irritation learning accounting software rather than hiring an accountant?

Do you absolutely need a social media expert?  As for marketing experts or consultants, it’s best to hold off until some money’s coming in and you’re coming up on the kind of momentum that makes this pricey step necessary and appropriate.

2. Prioritize Savings on Office Space

If you’d guess that the lease on office or production or retail space would be the biggest expense for starting up, you’d be quite right.  However, a lot of entrepreneurs make the mistake of getting too much space, planning for expansion, wanting to have a fancy lobby, etc.

The best strategy is to go for a low rate rather than high ceilings. Use a startup cost calculator tool, plugging in a price at the lower end of what is available in your area. 

Don’t just assume fifteen hundred or so per month.  Particularly if your business isn’t in retail sales, you shouldn’t have to worry too much about choice locations, and shouldn’t pay for empty offices or any amenities that don’t directly apply to your business. 

As we’ll discuss below, it’s important to be frugal with space just as with money, which means you’d be surprised how much success your business can have before you need additional space—often what drives big profits doesn’t take up space at all.

3. Buy Equipment and Furniture Wisely

Again, even if you’re requesting a loan from a bank or soliciting investors, this doesn’t mean you have to  splurge a little.  That’s a major milestone on the road to ruin.  Instead, apply a “buy as you need” policy to purchasing equipment, furniture, and supplies. 

If you find yourself saying “once we start getting the big accounts, we can take X out of the box…” X is something you shouldn’t buy.  Purchase items that have applicability to the scope of your business right now.

As for furniture and supplies, shop the warehouses that sell at discount for members; go to second-hand stores or even garage sales.  While trying to impress your clientele makes a certain degree of sense, you can start doing that increasingly in the months to come—don’t spend yourself out of business.

With inexpensive and limited furniture—no end tables for vases or lamps, no pristine oak tables with a petite laptop perched atop—use your space wisely, minimizing the expense of tables, filing cabinets, etc. by using up all your space, piling vertically, and going paperless as much as possible.

4. Don’t Try to Grow Too Fast

It’s true that one has to spend some money to make money.  There have to be initial investments in infrastructure to set up success.  However, as we’ve discussed, it’s possible to do a lot of your own web development and marketing and to use software in place of a paid contractor or employee.

Where some fledgling companies get in trouble is hiring very expensive consultants or marketing research firms to plot a major leap. 

Like equipment, the information learned this way may end up collecting dust for a while before it can be implemented.  Use a “pay as you go” philosophy in this regard.

Any entrepreneur who starts a business throws a lot of passion and effort into it.  We all try to do all we can to make our business succeed, often running up against factors we can’t control.

The factor we can control completely is how much we spend upfront.  Choose wisely!