Where start-ups spend their money

Be prepared for the expense and know exactly what everything will cost.

Starting and running a business is all about creativity and perseverance. Keeping an open mind will help you think of new ways to reduce your costs.

Perseverance will help you to reach your business goals using whatever resources are available to you.

Know where your money goes


Like renovating a house, it’s easy for new business owners to get caught up in the excitement of the project and exceed their start-up budget.

Expenses may be higher than expected for two reasons:

  • you really want something specific to be accomplished, such as building a custom database instead of using an off-the-shelf solution
  • you didn’t thoroughly research start-up costs in the first place and now you’re caught off-guard

Knowing where start-ups spend money can help you to be prepared for the expense and make sure you know exactly what everything will cost.

Now is the time to scrutinize every expense, especially within these three categories that are commonly the most expensive.

Employees


Paying people is a huge financial commitment and usually represents the biggest cost to a company. You are on the hook to meet payroll every two weeks, whether your business is succeeding or not.

You may be able to get the services and talents you need from a supplier instead. For example, contracting graphic design services can be cheaper than hiring someone. That way you only pay for the work you need done.

Explore ways to get the work done using virtual assistants, freelancers, contract workers, vendors, and temporary agencies until you are comfortable the business can handle permanent payroll.

Commercial lease


Commercial property rents can be expensive. In some cases, renting business space is unnecessary or premature for the stage of the company.

Instead, consider these options:

  • Can you sell your products or services through a website instead of an expensive storefront?
  • Can you negotiate kiosk space within a similar retailer? For example, if you’re selling prepared salads, you might be able to rent space at a large gas station, just like Subway and Burger King.
  • Is there room at home to set up working space rather than renting, staffing, and equipping a formal office?

Can you rent a small business suite instead of taking on a commercial space?

Advertising


Sinking a lot of money into advertising while you find your way may prove to be a waste of scarce financial resources. Consider engaging less expensive marketing tactics until your business finds itself, such as networking, pay-per-click advertising, or cross-promotions with other companies.

Set a launch budget


How much money do you need to start-up?

A conservative start-up budget should include all of your one-time capital costs (such as equipment, vehicles, and renovations) plus six months’ worth of operating costs (office rent, internet, salaries, and promotions).

Be sure to add 10% to the budget for safety and cost overruns.

 

Before you take action on any of the information above, we recommend consulting with a qualified business advisor that understands your unique needs and situation for your specific business and/or personal plans.