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Updated Oct 30, 2023

Funding Woes, Be Gone: 5 Ways to Minimize Your Start-Up Costs

Mike Berner
Mike Berner, Senior Analyst & Expert on Business Operations

Table of Contents

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Startup history abounds with stories of entrepreneurs who made it big on shoestring budgets. Spanx founder Sara Blakely began her shapewear business in the 1990s with just $5,000 in savings, and Nike co-founder Phil Knight famously paid just $35 to the graphic designer who came up with the company’s iconic swoosh logo. Many big business owners became successful by keeping costs low and staying frugal. 

Today, there are more ways than ever to save money as a new entrepreneur. Here are five strategies for startups to keep their finances healthy as they grow. 

1. Equity vs. salary

The easiest way to save money is to do everything yourself, which is why entrepreneurs often wear many hats. However, this becomes less feasible as your business grows. Sometimes you simply don’t have all the skills necessary to get your startup off the ground. Even a brilliant marketer like Steve Jobs needed Steve Wozniak’s technical skills to bring his ideas to life. 

But what if you don’t have the resources to pay someone a salary or consulting fee? In that case, you may consider granting partners and early employees equity in your business. This is a common tactic among startups that don’t have the cash to pay for salaries, although you should keep in mind that this dilutes your own stake. 

TipBottom line

It is crucial that you understand the difference between debt and equity financing, the two sources of capital that you can use to fund a startup.

2. Social media

Social media and user-generated content platforms, such as Facebook, Instagram, YouTube and TikTok, consume an increasing share of Americans’ leisure time. You can use these platforms to reach new customers more efficiently than you could with traditional forms of advertising, often at a fraction of the cost. 

But if you’re creative, you can leverage social media to reach a large audience for free. Although there’s a lot of luck involved in generating viral posts, you can increase your chances by creating content that brings value to an audience. Whether it’s an informative how-to video showing off your business’s services or a funny skit that incorporates your product, consumers often respond better to tactics that don’t feel like blatant advertising. 

Whether you’re using paid or organic social media content, don’t cast aside the potential of this marketing channel without trying it. You never know what could go viral tomorrow. 

Did You Know?Did you know

According to Score, 77% of U.S. small businesses use social media for sales, marketing or customer service.

3. Minimizing taxes 

At some point, you will want to consider organizing your business as an LLC or an S corporation. Forming an LLC will protect your personal assets in the event of a lawsuit against your business, but there can also be tax advantages. LLCs and S corps are pass-through entities, meaning your business’s income is treated as personal income for tax purposes. For states with high corporate tax rates, this can avoid the double taxation issue, which occurs when a business’s income is taxed at both the corporate and individual levels. 

On the other hand, C corps are first taxed at the corporate level, and any salaries paid out are taxed at the individual level. This might be an advantage in states such as Wyoming, Nevada, Texas and South Dakota that have a zero corporate tax rate. C corps also allow businesses to deduct certain expenses. Research your local tax laws and regulations before choosing which structure to take on.

4. Cash-back cards

In the early days of Airbnb, co-founders Brian Chesky and Joe Gebbia maxed out numerous personal credit cards to raise money. Although we don’t recommend going that route, credit cards can save you money when used wisely. 

Many cards offer sizable signup bonuses, usually in the form of points or a statement credit if you spend a certain amount of money within the first few months. New businesses often spend money on products, office supplies and software licenses, so you probably won’t have any problem meeting the minimum spending to earn the bonus. 

Some business credit cards offer cash back. Others accumulate miles or points that can be applied toward airfare, hotels and other travel expenses. Many airlines and hotel chains have their own co-branded credit cards, often with perks such as free checked bags. Think about what rewards will benefit your company the most, and learn how to apply for a business credit card.

5. Low-cost business software solutions

Although nobody really gets excited about bookkeeping, it pays to keep track of your startup’s finances so you’re ready come tax season. For that, you’ll need accounting and invoicing software. The best accounting software options are generally affordable; some even offer free-to-use versions. If you want to accept payments on the go, you will also need a top credit card processor. Consider the fee structure for each processing service; some charge based on volume, while others charge flat rates. 

For startups that require a website, obtaining a domain name and hosting services need not break the bank. In fact, many of the best web and cloud hosting services throw in a domain name free for a year when you sign up. Quality providers often run promotions for new customers that can make the first year of running a website relatively inexpensive. 

One issue for new businesses is that many domain names are already taken. While some business owners spend exorbitant amounts of money to acquire the perfect domain, we feel there are better alternatives. Sometimes you can affix a second noun or location, e.g., SmithPizzaNYC.com vs. the already-taken SmithPizza.com. One real-life example is Tesla, which used teslamotors.com until the company finally purchased the tesla.com domain in 2016. 

If your ideal, must-have “.com” name is already taken, consider using alternative top-level domains such as “.co” or “.io” instead. 

Mike Berner
Mike Berner, Senior Analyst & Expert on Business Operations
Mike Berner is a staff writer at business.com and Business News Daily, where he specializes in finance topics including business loans, accounting, and credit card processing. Mike has a deep background in the financial world, having written hundreds of articles and blog posts on financial markets, business and investing. He holds a B.A. in economics and a B.B.A. in finance, both from the University of Massachusetts, Amherst. Prior to his writing career, he performed financial analysis and research as an economic analyst.
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