Starting a business can cost tens of thousands of dollars, even if you’re working with something small and lean. If you’re trying to launch a business that requires heavy equipment, or if you’re looking to expand quickly, you might need millions.
It’s likely that you will face a financial burden upon entering the world of entrepreneurship. Fortunately, there are many strategies you can use to get the funding necessary to cover the expenses, such as working with a VC, an angel investor, or crowdfunding. But you may still need to call upon some creative tactics to reduce the expenses your business is going to face.
How to Improve Your Startup Finances
These are some of the best ways to ease the financial burden of starting a business:
1. Buy used.
Consider buying used equipment to fill your needs. If you’re buying electronics, there’s a sizable market for old devices – and you can probably find last year’s models for a much lower price than they are offered new. Similarly, if you’re buying vehicles or machinery, you can often score a much better deal by buying them from another business. Just make sure you evaluate the quality before committing to the purchase.
2. Lease instead of buying.
If you’re looking at buying expensive equipment, consider leasing instead of buying. Leasing has a number of advantages over buying, even if you’re buying used. The most obvious benefit is that you’ll save money in the short-term. When buying equipment, you’ll be responsible for purchasing the item outright. Alternatively, you could secure a down payment and get a loan to pay for the rest, but loan interest rates can be high (and you may not want to take on that liability). You may still be required to provide a down payment with a lease, but your total upfront costs will be lower, making the financial barrier to entry more accessible.
3. Minimize overhead expenses.
You also need to think about your overhead expenses. These expenses are ongoing and can’t be directly associated with a cost unit. This makes them difficult for new business owners to estimate and control, and makes them potentially highly impactful to your bottom line. One of the easiest ways to reduce overhead expenses is to reduce the size of your workspace. If you’re launching a manufacturing business or if you’re in need of warehousing, there’s only so much you can cut; but many modern businesses can operate almost fully remotely, cutting the need to pay for a large office space.
4. Hire only who you need.
Ambitious business owners are often eager to build their teams quickly, so they have all the right people in place from the beginning. But labor can be expensive – especially if you’re dealing with turnover, volatile revenue, and other growing pains of new businesses. Trim costs and stabilize your company’s finances by hiring only who you need – at least at first.
5. Secure a floating line of credit.
Even with the best financial management strategies in place, it can be difficult to make ends meet. You can make things a bit easier on yourself with a business line of credit. A line of credit works a lot like a loan – but it’s a floating borrowing limit that you can tap into at any time. You can repay and borrow flexibly in this arrangement.
6. Invest in insurance.
To a new business owner on a tight budget, insurance may seem like an unnecessary expense that can easily be cut. But insurance may be one of the most important expenses in your business, providing you with financial protection in a number of areas. Make sure you don’t skimp out on this area.
7. Form partnerships and barter.
You’re not the only small business owner in your city who’s struggling with financial matters. Consider forming partnerships with other entrepreneurs in your area and bartering or trading to cover each other’s needs. It could be mutually beneficial with the right approach.
8. Manage your time carefully.
This may seem like a strange tip in an article providing financial advice, but learn to appreciate the value of your time. Too many entrepreneurs spend countless hours to save a little money and end up hurting themselves in the end.
The Early Stages of Growth
The earliest stages of your business’s development are going to be the hardest, financially. You’ll have significant startup expenses, minimal income, and no prior data or experience to help guide your financial decisions. Pay close attention to your business’s profitability and operating expenses during these early growth stages and make the most informed choices to help your business grow.