How to Save Money When Starting a Brand New Business
When you are staring a new business it’s important to be as frugal as possible. You need to make every dollar stretch as far as it will go. So many new business owners are under the false assumption that there are endless investors VCs and banks willing to give out money to anyone with an idea.
This is far from the truth. It’s very hard to get an investment, and if you do, you will have to give up a large percentage of equity. VCs fund less than 3% of startups, and small banks are making it harder than ever to secure a small business loan.
Why?
Because most businesses fail. That is the reality. So, if you want to improve the chance of surviving, you need to learn to pinch pennies around every corner you can. Here are some expert tips to help you save money in the early stages.
Operate remotely in the beginning.
We all see the stories in the media of the Silicon Valley startups with the fancy offices, ping pong tables and kitchens. For every office like that there are thousands that are bare bones and struggling just to pay the rent.
“Consider operating remotely in the beginning,” offers Pat Skinner of AnswerFirst Communications. “This allows you to eliminate a major expense right away, along with the other expenses that come along with it, like electricity, building maintenance, office furniture, etc.” The money you would shell out for an office can be used for growth.
Not only do you save money but you avoid a major liability, as most commercial office leases are five to ten years and require a personal guarantee, meaning you are personally liable if the business goes under.
Hire contractors over full-time employees.
When you hire full-time employees you also have to cover benefits, employment taxes and a slew of other expenses. Consider hiring contract workers to start, then when the business proves itself you can convert to fulltime employees.
Hiring 1099 contractors eliminates a lot of the other financial responsibilities that came along with fulltime employees. You will want to check with your particular state and country, but most of the time this approach will save a tremendous amount of time and liability, as you can fire contractors easier with no ramifications.
“Some companies start all employees off as contractors and
then once they prove themselves they are converted to fulltime status, where
they then receive benefits, etc.,” says Karen Anderson of The Probate Law House,
a source of original will and death
certificate. “Every situation is different of course, so do what is best
for your company.”
Leverage referrals to limit marketing spend.
If there is a way to get your existing early customers to refer new business, either by offering a reward or a commission, then implement it. Doing so can help build your customer base without having to spend marketing dollars.
“A referral program will cost you money as you pay for customers, but you are only spending money on customers,” says best weighted blanket manufacturer Therapy Blanket founder Andrew Tran. “If you throw your money into an ad or a campaign there is no guarantee it will deliver any kind of return.” You might lose every penny. A referral program can help you scale without any financial risk.
E-commerce websites can use a wide range of affiliate programs to manage their program, while more traditional businesses will have to think of ways to track referral sales.
Take advantage of organic search traffic opportunities.
SEO takes a lot of time, so be smart with your search engine optimization budget in the beginning.
“Rather than putting a lot of money towards ranking for highly competitive terms and keywords that could take several months to deliver any kind of traffic, go after the low hanging fruit,” advises Pedro Del Nero of Vaporizer Vendor. “If you know you can rank on top for dozens of terms that each bring in 100 visits a month that will deliver instant traffic, which hopefully then generates sales.” You can then go after the larger more competitive terms to bring traffic to your blog when you have the money to do so.
There are several keyword tools you can use, but the easiest way is to look at your Google Search Console data to see what search terms are making your website show organically and then seeing what their volume is. You can usually find keywords you never thought of this way.
Create an intern program.
If you have local colleges and universities then it is worth talking to them about getting set up in their internship program. There are pros and cons of using interns.
“The great thing about interns is that there is no cost and you get to have creative young minds working at your company,” says Irene McConnell of Arielle Executive. “The downside is that they are often short-term, working for a single semester.” You might have some that turn into fulltime staffers when they are done with school but those situations are few and far between.
Social media is probably the most suitable position to constantly have an intern working, as it allows you to have someone that really understands it and it helps to keep your social strategy fresh, as there is a new person in the position every six to eight months.
Focus on profitability and making money.
A lot of new businesses worry about everything but making money, and “users” are great, but what good are they if the business isn’t making any money? None, as the business will fail.
“Ignore the current startup culture of ‘don’t worry about making money’ because it’s changing, as we are seeing a lot of startups fail and not even get off the ground because the glory days are over,” says Ignacio Soria of CANN & Co. “Now investors want returns. They don’t just want users.” The faster you can get profitable, the easier it will be to survive and grow.
Breaking even is ok, but you still won’t survive. Don’t be scared of the word “profit” because it’s crucial to your long-term survival.