If you think starting a business is difficult, you are wrong. Keeping it afloat is what requires real stamina, smarts, and sagacity. According to the Small Business Administration, the survival chances of a business increase over time—this means that if your company survives past the first formative years, you will likely be open for business for the next five or more years. Most businesses do not make it past the first few years because of a lack of profitability, where the expenses are much higher than the revenue. The temptation is great to splurge on expensive and fancy office furniture, hire exorbitant experts, or pour money on flashy advertisements, but such decisions will cause your business to wither, slowly and painfully. The ability to stick to a budget and to keep the outgoings low is what sets super successful businesses apart from average ones.
1. Minimize Rent Costs by Coworking
Whether you are starting a small business or already running one, office rent can drastically eat into your revenue and squeeze your bottom line. Ironically, many small businesses splurge on office space with the excuse of creating a conducive working environment. Investing in a Googleplex of your own is probably not a smart idea when you’re trying to get your business off the ground. Coworking is an affordable alternative to expensive office or retail spaces. The workspaces are professional, full of startup and entrepreneurial geeks like yourself, and more importantly, they offer flexible payment options ranging from day passes as low as $20 to monthly membership fees in the range of $100 and $300. Compare this with $14,800, the annual amount it costs to rent an office space in New York, or $13,032 in San Francisco. In many cases, co-sharing fees are inclusive of services such as access to office equipment, internet, communication services and boardrooms.
2. Trim Staff Costs with Outsourcing
Do you really need a team of five admin staff, an accountant, a high-end corporate lawyer, and a tax expert? If you are a small business, you most likely do not require layers of staff to help you manage every aspect of your company. Outsourcing is no longer limited to large corporations; small businesses are also hiring virtual staff to complete tasks such as administration, payroll and human resource management, accounting and taxation tasks, as well as marketing. A recent survey conducted by Elance, an online outsourcing marketplace, showed that 78% of the small businesses surveyed saved costs, accessed affordable and talented staff, and gained a competitive edge in their respective industries when they outsourced.
3. Get Rid of Unnecessary Technologies
Small businesses are told to make the most of technology to cut costs. The magic of technologies such as cloud computing, online invoicing, teleconferencing and others is undeniable. Yet, sometimes technology can be costly for a business, for example, when too much money is spent on different types of software. Do not be carried away by the “app” wave; it is easy to want to jump onto any new and shiny application that is on the market, but the cost of buying and upgrading these applications can add up quickly.
4. Watch Out for the ‘Big Ideas’ Trap
On a regular day, the typical entrepreneur has tons of ideas blitzing through their mind. These are often grand ideas about dominating the industry, doing something extraordinary, or saving the world. Ideas encourage innovation and creativity. However, often entrepreneurs waste money on pursuing one grand idea after another, even when it is clear that the project is not worthwhile after all. Before jumping onto the next big project, ask yourself whether spending money on it will contribute to your bottom line directly. If the answer is no, then it is a clear indication not to spend any more money on that seemingly grand and noble idea.
5. Get Smart on Your Hiring Expenses
Is hiring that six-figure corporate executive the best use of your business revenue? A common yet costly myth among entrepreneurs is that hiring a corporate expert is the best way to fast-track a business. The corporate world and the business world are two starkly different domains. Corporate executives rarely have the experience and hands-on skills needed to maneuver the world of entrepreneurship. Think twice about the cost-value tradeoff that such a hire would bring to your business. It is important for small businesses to hire the most suitable talent to ensure that the company remains relevant and competitive in the industry. For example, do not hire an amateur web designer when what you really need is an experienced developer. It is better to hire a few highly qualified professionals than to skimp on unqualified hires.
6. Eliminate Costly Bottlenecks From Business Processes
Are you delivering products to your customers on time? Are there any communication hitches or delays between you and your employees? What about the transactions with your suppliers? Bottlenecks are deal breakers that can cost you money when you lose customers, experience high employee turnover, or start to deliver low-quality products and services that taint your reputation. Eliminating bottlenecks or reducing their impact requires you to assess your business processes regularly to ensure that these processes are flowing systematically. To unblock a bottleneck, you can either make a particular business activity more efficient by increasing resources, for example, by bringing in a part-time assistant when there is an influx of administrative tasks. Alternatively, you could minimize the resources, for example, by cutting down on the number of suppliers so you can focus on a few, quality and reliable suppliers. Flowcharts can help to simplify the different business processes in your company, so you can easily pinpoint whether each process is working as it should, or if improvements are required.
7. Spend Less on Advertising Costs
This is yet another unconventional wisdom, but it works. A lot of the time, business owners are advised to spend money to make more money. But this is not a smart concept to apply unless you want to sink your business fast! Paid advertising is one such area where entrepreneurs are encouraged to spend more to get ahead of their competitors. Generating buzz for your business is commendable, but it is not necessary to splurge hundreds or thousands of dollars on advertising campaigns. Today, there are much cheaper and effective ways to market your products and services, for example, using social media, a business blog, industry social networks and, more importantly, through word of mouth. According to Forbes, small business coaches recommend basing your advertising budget on an advertising-to-sale ratio where the advertising is 10% of the projected sales. This ensures that the sales revenue limits what you spend on advertising, so that you are not spending more than what you are making.
See Also: How to Run a Cost Analysis for Your Business as You Start It Up
Running a lean company should be one of your primary goals as a small business owner, especially if you are operating on a shoestring budget. Running a cost-effective business is really about being extremely selective about how you spend your business money. Cutting back on staff, opting for office co-sharing, spending less on apps, and trimming expenses on paid advertisements may all seem like penny-pinching, but this is the surest way to keep your business afloat. So, are you looking to be open for business in the next five years? Maybe it is time to ditch that expensive executive team or that exorbitant office space.