Counting money

How Your Startup Can Cut Costs Without Shooting Yourself in the Foot

It’s one thing to bootstrap your business. It’s another thing to spend too little on core operations. That’s a mistake plenty of entrepreneurs make. Rather than being tactical and selective, they cut corners across every possible line item. As a result, they end up weakening their funding in places where it makes sense to spend a little more.

Of course, you want to make sure you’re selective about where your cash goes. Eight out of 10 business failures are due to financial problems. Just the same, be careful about penny pinching across the board. A better practice is to be efficient but also fiscally reasonable and realistic.

Below are some ways for you to optimize the way you allocate your startup’s funds. Handled correctly, they won’t slow or stall your effectiveness. At the same time, they shouldn’t bankrupt you, either. On the contrary, they should pay for themselves at the very least.

1. Hire fractional experts

One of the biggest mistakes a lot of entrepreneurs make is trying to do everything with their team’s expertise. Sometimes, your in-house personnel just don’t have the backgrounds to capably, securely, and compliantly handle certain tasks. Take accounting and payroll, for instance. These are two heavily regulated areas. Your company can’t afford to make mistakes in either situation because you might end up with fines or other penalties.

You don’t have to go out and hire a full-time accountant or payroll administrator, though. You can turn to fractional experts like an outsourced startup CFO. Many experienced people are interested in roles as “fractional” team members. They aren’t looking for full-time positions, which means you don’t have to pay them benefits. You’ll get access to the knowledge you lack without overspending. It’s a great way to ensure that you’re not putting too much pressure on your employees, too.

2. Embrace remote work arrangements

Even if all your employees work in the same geographic location, consider letting your office lease run out. Is it necessary for you to have a physical building? Could you run your startup just as successfully if everyone worked virtually? Remote work isn’t for everyone, but it can save a lot of money on rent, utilities, and furnishings. Even if you only move to hybrid work, you can scale back on the size of the workspace you need.

Another advantage of moving toward becoming a remote-friendly organization is the potential for future talent sourcing. If you’re not going to make everyone on your payroll commute, you can hire anyone from anywhere. That makes it easier to find the right person for every open or new role. You can also achieve a more diverse workforce because you won’t be locked into people living in your community.

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3. Invest in one high-quality piece of centralized technology

Have you ended up with piecemealed technology? Plenty of startups try a bunch of different software and systems. Unfortunately, this can lead to programs that don’t talk to one another. The more programs you have, the more tabs your employees have to jump between. Additionally, you may end up with data silos, which makes it tough to remain competitive.

No matter how many pieces of technology you have, ask yourself if any can serve as a single source of truth. Is there a customer relationship management portal like Salesforce or HubSpot that offers centralization and convenient cloud access? Perhaps some of your current tech stack pieces will already integrate with the CRM system. The fewer systems you have, the simpler it will be for everyone to be able to do their jobs.

4. Restructure your hierarchy

Because of their smaller size and innate flexibility, a lot of startups have a flat hierarchical structure. In other words, they have few middle managers, most people wear multiple hats, and there’s a lot of empowerment. This structure can work very well, but it may not always be as cost-effective. As your operations begin to take more shape, consider reworking your management model. Could something more traditional be better suited for your intended goals? Or do you need to refine what’s somewhat working?

It can be hard to know how to go about designing an organizational structure. This might be another time to bring in a consultant to help. The right consultant will be able to steer you toward solutions — and away from potential headaches. Just be sure to evaluate consultants carefully and know what you want to accomplish. In the final analysis, you’ll want to be left with a model that fits your brand and its people.

5. Start measuring initiatives’ ROI

A good rule of thumb is to track all your expenses and review them at least monthly. However, tracking isn’t the whole story. You might see that you spent $10,000 on Facebook ads and $5,000 on Google ads. Does that mean you need to cut back on the former? Not necessarily. Your Facebook ads could be giving you a 5X return rate. At the same time, your Google ones could be producing at just 1.5X the return. In other words, they’re both paying for themselves, but Facebook is outperforming. Therefore, you might be wise to put a little more into Facebook — or tweak your Google messaging.

Measuring at least a few key performance indicators (KPIs) can give you tons of insight into cost-cutting possibilities. You can’t just look at expenditures and know innately if you’re getting an ROI. You have to drill down into your data and find out what your numbers actually mean. Be aware that you’ll want to avoid falling into the trap of getting lured by so-called “vanity metrics.” Only measure insights that are clearly going to help you see if an investment is worth your while.

Even if you’re sure that you’re pinching every penny, take a second look at your operations. Could there be a few places where you can make wiser financial choices? Most entrepreneurs who do some research find that they can cut out extra dollars without cutting corners.

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