Funding Woes, Be Gone: 10 Ways to Minimize Your Startup Costs

How to reduce your startup costs

Numerous companies have made it big with minimal startup costs. For example, 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 created the company’s iconic swoosh logo.

It’s possible to keep costs low and stay frugal as you launch your new company. Consider the following strategies to support your startup’s financial health as you grow your business.

1. Choose a startup business with low costs.

Some businesses are more expensive to set up and operate than others. For example, you can start a business with no money or minimal funds if you’re launching a consultancy or becoming a virtual assistant. In contrast, starting a restaurant can cost anywhere from $95,000 to $2 million. 

If you have a general idea of the business you want to start, find a way to start small. For example, if you really want to start an eatery but can’t afford restaurant startup costs, consider opening a food truck.

If you want to become an entrepreneur but haven’t settled on a specific business idea, consider researching ventures with minimal startup costs. Plenty of cheap business ideas exist. For example, you can start a tutoring business with less than $100 and build business momentum, eventually hiring independent contractors as tutors and paying them a percentage of each customer’s hourly fee. Another example is creating a business as a manufacturer’s representative, where you sell another company’s products and get paid a commission on each sale.

2. Choose a legal structure that minimizes your tax obligations.

Your business’s legal structure will affect your tax obligations — a significant consideration that can reduce your startup costs. 

For example, forming an LLC will protect your personal assets in the event of a lawsuit against your business and may also bring tax advantages. LLCs and S corporations are pass-through entities, meaning your business’s income is treated as personal income for tax purposes. For states with high corporate tax rates, selecting one of these legal structures can help avoid the issue of double taxation. This occurs when a business’s income is subject to taxation 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, which have zero corporate tax rates. C corps also allow businesses to deduct certain expenses. Research your local tax laws and regulations thoroughly before choosing a legal structure for your venture.

3. Hire family members for your startup.

Startups often need help but have limited funds for salaries. Before hiring employees, seek help from family members. Some may be willing to help out for free temporarily, while others may only ask for a small amount. You likely won’t need to offer employee benefits packages to family members temporarily pitching in. 

If your startup is a family business, your children may have the added incentive to learn the business and become part of your legacy. Involving family members may even have additional benefits: Research on family businesses shows that they’re often more successful than comparable businesses that aren’t family-owned.

4. Outsource some of your startup’s functions.

To save on startup costs, consider partnering with one of the best HR outsourcing services instead of hiring an in-house HR person or team. Outsourcing customer service is another cost-saving option. Outsourcing can help you save money on salaries, benefits and payroll taxes. 

While outsourcing can potentially reduce your startup costs, it’s important to carefully evaluate your situation to ensure you’re not actually spending more than you need to. Dr. Darla Bishop, an entrepreneur and founder of Piggy Bank Pathways, recommends outsourcing as a startup in two distinct situations:

1. Performing the business function costs you more than outsourcing in terms of time and productivity.
2. The task requires a level of skill or compliance you don’t have.

“A good rule of thumb is to outsource what drains you or what directly impacts your professional image or legal standing,” Bishop advised. “For example, hiring a bookkeeper or CPA can prevent expensive mistakes come tax time. Similarly, outsourcing your website setup, legal contracts, or branding may save time, reduce errors, and boost credibility from day one.”

5. Give equity instead of a salary.

The easiest way to save money is to do everything yourself, which is why entrepreneurs often wear many hats. However, juggling all aspects of running a business becomes less feasible as your company grows. Sometimes, you simply don’t have all the creative and business 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, consider granting equity to business partners and early employees. Granting equity is a common tactic among startups that lack the funds to pay salaries — just remember that it will dilute your personal stake.

6. Work from home to save money for your startup.

Many startups can avoid leasing office space, allowing entrepreneurs to save on startup costs by working from home. 

“Skip the office lease and reinvest that money into product development or marketing,” Bishop suggested. “Use coworking spaces or libraries when you need a change of scenery.” 

Even when you start staffing your business, consider allowing remote work with occasional in-person meetings at a coworking space or another location. 

Numerous software tools enable workplace collaboration among remote teams. Additionally, employee monitoring and project management solutions can help ensure everyone is on the same page and accountable for completing their assigned work.

7. Use social media to market your startup.

Social media marketing is an inexpensive and highly effective way to promote your business, making it ideal for new businesses seeking to reduce their startup costs.

Bishop has enjoyed immense success with free, well-thought-out social media marketing. “When I posted a short, no-frills video about how to afford everything on TikTok, it went viral,” Bishop recalled. “I made $700 in book sales in just a few days without spending a dime on ads.” 

Consider the following free social media marketing tactics: 

• Try free Facebook marketing strategies, such as creating a Facebook Business profile.
• Use Instagram for business to boost online awareness of your new brand. 
• Make a YouTube channel to attract and engage your audience. 
• Establish a presence on TikTok to connect with younger consumers. 

Social media marketing can help you reach new customers more efficiently than you could with traditional forms of advertising, often for free or at a fraction of the cost. Although you can’t control whether a social post will go viral, you can create valuable content for your audience that helps establish your brand. 

8. Utilize cash-back credit 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 sign-up bonuses — usually in the form of points or a statement credit — if you spend a specific amount within the first few months. New startups often purchase 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 redeemed for airfare, hotels and other travel expenses. Many airlines and hotel chains offer co-branded credit cards, often featuring perks such as complimentary checked bags. Consider what rewards will benefit your company the most, and seek out reputable credit card offers — but be sure to use business credit cards wisely to enjoy their benefits without overspending.

9. Implement low-cost business software. 

Your startup will require business software solutions, but they don’t have to break the bank. Consider the following: 

• Accounting and invoicing software: The best accounting software options are generally affordable. For example, our Xero review details this platform’s entry-level plan, which starts at $20 per month. There are also free accounting software options, including Wave. 
• Credit card processing: If your new business will accept credit cards and digital payments, you’ll need a credit card processor. While many of the best credit card processors have reasonable fees and pricing structures, choose the most cost-effective solution for your sales volume and business needs. Consider any potential payment processor’s rates and fees before committing — some charge based on volume, while others charge flat rates. 
• Web services: Creating a website doesn’t have to be expensive. Many web hosting providers offer promotions for new customers, including a free domain name for the first year. If your ideal domain name is taken, try adding a location or extra word — for example, SmithPizzaNYC.com instead of SmithPizza.com. (Tesla did something similar, using teslamotors.com until buying tesla.com in 2016.) 

10. Create strategic partnerships to support your startup.

Creating strategic partnerships with complementary companies is an often-overlooked way to minimize startup costs. For example, let’s say you sell sunglasses and have only a small marketing budget. You can create a co-marketing arrangement with a store that specializes in swimwear. It will promote your products to its customers via email and social media, and you’ll do the same. 

Startups can also sometimes get a huge boost by partnering with a large corporation, particularly if the startup owns innovative technology protected by patents and copyrights. For example, Aurora Innovation Inc. developed groundbreaking strides in self-driving cars. In 2021, it teamed with Toyota to create the first self-driving taxi. Later, Toyota bought some of Aurora’s technology to use in its vehicles. Toyota lent its resources, and in return, saved money by not having to recreate the technology with its own engineers.

More money-saving business tips

Your startup’s initial funding and ongoing money management can significantly impact its future success. Consider the following money-saving tips to improve cash flow and increase your chances of building a thriving business.

• Find an angel investor: An angel investor can ease the financial burden as you launch your business. Angel investors are equity partners — similar to venture capitalists — who invest their own money in startups. Typically, they don’t expect repayment until the company generates revenue or is sold. Because this funding isn’t a loan, no interest accrues.
• Take out a business loan: If you have good credit, you should be able to secure a small business loan with a reasonable interest rate. The best business loans for startups will have doable acceptance criteria, an easy application process and flexible terms.
• Launch a crowdfunding campaign: If you can’t get an angel investor and are keen to start a business without a loan, consider crowdsourcing. Numerous crowdfunding platforms can help invite people to invest money in exchange for goods or equity. You must market your business idea effectively to garner the visibility you need to raise money, but crowdfunded money typically doesn’t need to be repaid.
• Negotiate with your suppliers: Creating a unique product can be costly. If you purchase multiple items from a particular supplier, consider negotiating volume discounts. If the supplier is also a relatively new company or is trying to establish a foothold in your market, you might offer to promote their products to other potential customers in exchange for a discount on your purchases.
• Improve your cash flow: Consider streamlining your accounts receivable process to improve cash flow and stay on top of the money customers owe you. Other ways to maintain steady cash flow include asking for upfront deposits from customers, sending invoices promptly, offering early payment discounts and charging interest on late payments. On the accounts payable side, ease cash flow worries by negotiating with vendors to pay on net-30 or net-60 terms.
• Minimize inventory expenses: Carefully monitoring your inventory can help your startup save money. Excess inventory costs money to store, and not enough inventory will result in lost sales. The best POS systems include inventory management functionality that helps you track inventory accurately, understand stock levels, and streamline purchasing and storage.
• Track expenses: Bishop recommends tracking all business income and expenses and keeping them separate from your personal finances. “Use free or low-cost bookkeeping tools like Wave or QuickBooks to monitor your business budget separately from your personal money,” Bishop advised. “That separation is key when you’re ready for business loans, investors and grants.”

Miranda Marquit and Mike Berner contributed to this article.