5 Ways to Reduce Small Business Startup Costs

Small businesses are great. They allow individuals to follow their passions, be their own bosses, and build their ideas from the ground up. They are the backbone of the economy.

Unfortunately, they are also expensive. But becoming an entrepreneur needn’t mean decimating your savings or robbing a bank—instead focus on these five main strategies to start a business on a budget.

1. Prioritize through planning

You’ll likely find it incredibly easy to make a massive list of startup costs. The trick is sticking with what’s necessary to operate effectively while minimizing any additional costs. And to do that you need to develop your business plan.

Create a list of all items your business needs to start and operate, including things like computer equipment, POS systems, office supplies, furniture, and salaries. This will help you build out the financial section of your plan and forces you to estimate realistic startup costs. 

By the end, you should have a budget that accounts for all the needed items, a cash flow statement, which is at this point a forecast, to track the financial health of your business and an income statement to understand your revenue and expenses. Having all of this planned out ahead of time will ensure that your business is sustainable and that any upfront costs are manageable. 

2. Track everything

It is wise for anyone planning to start a business to keep track of expenses from the very beginning. A business owner should track every single expense, from the purchase of equipment, furnishings, and supplies to advertising and other marketing expenses to services rendered by lawyers and design consultants—any business-related expense is important to note, no matter how small.

Keeping records allows a businessperson to track unnecessary expenses and do away with them. These records also act as evidence in case of a legal tussle. And if you save every receipt and keep them as record in a safe location, or utilize an accounting service, your deductions at tax time will be easy to calculate.

Cloud technology has made this aspect of business easier than ever. For example, you can save considerably by subscribing to online inventory management and order application that integrates with your accounting software, allowing you to track business expenses and payroll as well as orders and shipping, all from one software package. In fact, there are web-based business applications being developed that can easily integrate many of your business operations, from marketing to project management, under just one platform.

3. Hire intently

Similar to planning your purchases, planning out your staffing costs is a vital way to reduce your startup expenses. As you’ve written your business plan, you’ve had to outline your staffing needs and current team. For investors, this helps them understand who is already involved and that you have identified potential gaps you’ll be looking to fill.

At the start, you simply can’t hire everyone. If you do, you’ll quickly find yourself burning through cash and underutilizing your staff. If you’re unsure of how many employees you’ll need to start, you may want to look into hiring contractors or outsourcing specific areas of your business. 

Besides helping you identify what employees are necessary to operate your business, the value they add to your business comes at a reduced cost. You only hire a contractor for as long as it takes to get the job done, and you don’t need to pay their social security taxes or offer them benefits such as paid time off. Best of all, you don’t add to your payroll commitments. 

And potentially, if they do a standout job, you may be able to hire them as long-term employees which expedites your hiring process. 

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4. Upfront deductions

As you define your expenses, keep in mind that as a small business owner you’ll likely be able to write off a significant amount of your startup costs and organizational expenses. If you’re filing your taxes yourself, you’ll want to be sure that you understand every deduction available to you. Equipment depreciation, home office expenses, salaries, and benefits, as well as taxes, are just a few of the potential deductions to take advantage of.

At first, it may make sense to hire an accountant to be sure you’re utilizing every deduction possible. If your business model and expenses don’t change drastically and you become more comfortable with your financials, you can always shift to managing your books on your own later on.

5. Bulk purchases

While it’s important to keep your startup costs lean, there may be times where buying more upfront is the better option. Office supplies, software licenses, product materials, and even service arrangements can easily build up over time. And while you need to be cautious and not buy an excessive amount, you may find that a larger purchase makes more sense, especially if a discount is provided.

Take the time to compare prices, test products, and plan out the use cases for items you’ll be using for the day-to-day operation of your business. You may even find yourself building solid relationships with vendors and service providers which can also lead to initial discounts. Don’t rush into a minimal purchase right away while making sure that any larger purchases are feasible and actually save you money.

Planning is the key to reducing costs

As you’ve probably noticed, every cost-saving tip here is fueled by a single thing. Business planning. Without a solid plan to start with, any steps you take will simply be a shot in the dark that may or may not lead to actual cost savings. 

In fact, planning itself can be a cost-saving method for your startup. The more efficiently and effectively you plan, the more time you’ll have to spend on other areas of your business. You can always start with our downloadable template, but if you need a simpler planning solution, you may want to consider trying out planning software such as LivePlan. 

No matter what option you choose, starting with a business plan is the best way to reduce your startup costs. It acts as a roadmap, a way to test ideas and ensures you approach any cost-saving tactics tactically. From there, it’s up to you to see what works for your business and keep finding new and creative ways to minimize your expenses.