Where startups spend their money

Be prepared for the expense, and help make sure you 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: the owner really wants something specific to be accomplished (like building a custom database instead of using an off-the-shelf solution), or the owner didn’t thoroughly research start-up costs in the first place and is simply caught off-guard.

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

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. And, sometimes, 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 complementary retailer? For example, if you’re selling prepared salads, you might be able to rent space at a large gas station, like Subway and Burger King do.
  • 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, vehicle and renovations) plus six months’ worth of operating costs (office rent, telephone, salaries and promotions). Add 10% to the budget for safety and cost overruns.

Next steps