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Entrepreneurs are often advised to “go for broke.” That sounds great … until it actually happens.
Business bankruptcies are expected to skyrocket in 2023. With soaring inflation, rising wages and falling consumer confidence, it’s likely that more startups will go broke than not this year. Yet, in some ways, we’re living in the golden age of starting a business. Famed venture capitalist Bill Gurley even told McKinsey in 2022, “If you’re going to build something from scratch, this might be as good a time as you’ve had in a decade.”
One big reason it’s a great time to start a business is that there are more ways than ever to save money when doing so. If you’re looking to launch your enterprise in the near future, here’s what you should be doing now to cut costs and increase the likelihood of financial stability.
Go remote
Many businesses are saying goodbye to expensive office rent, utilities and other overhead costs associated with physical real estate. Some have even shelled out big bucks to go remote, betting the move will pay off in the long term. Pinterest, for example, paid close to $90 million to terminate the lease at the social media company’s San Francisco headquarters and go fully remote in 2020. Entrepreneurs who don’t need to blow cash on office space to start their businesses can put those funds to much better use.
Of course, many business leaders hold differing opinions on whether remote work is productive. But you can save on office space without sacrificing efficiency by implementing best practices for working at home. If you’re worried about your new employees bingeing Netflix on the job, you can use top-rated employee monitoring software to track employee productivity from afar.
Broaden the talent search
Another benefit of remote work is that you can hire employees and contractors in areas with lower costs of living, potentially saving on salaries and wages. Gurley noted the case of cloud computing company PagerDuty, which he said “went into the pandemic at 85 percent Bay Area employees and came out at 25 percent.” By looking outside the region, PagerDuty was able to hire strong talent at a cheaper cost, thus saving the company money on personnel expenses.
Data from Glassdoor shows that the average software engineer earns $101,000 in Boise, Idaho, versus $144,000 in San Francisco. If you pay employees based on where they live instead of where your company is based, you may be able to save on salary expenses.
Keep in mind, though, that going remote and hiring employees regardless of where they’re based will put another line item on your expense report: video conferencing services such as Zoom. Still, you’ll likely come out ahead, as the cost of a Zoom account is minuscule compared with the costs of office space and most salaries. Just don’t make this $250,000 salary mistake.
Bundle technology
Small businesses are increasingly leveraging productivity-boosting technology, such as online credit card processing, digital communications platforms, and accounting and payroll software. However, the costs of these solutions can add up, especially if you’re using separate vendors for related tasks.
To save on software expenses and streamline operations, consider bundling as many products from one vendor as possible. For example, our review of QuickBooks accounting software and our review of QuickBooks payroll software explain how these popular Intuit programs can be purchased together. Doing so ensures seamless integration and better pricing than if you were to use separate accounting and payroll service providers. Another example of a cost-efficient bundle is the Microsoft 365 suite of products. Similarly, you can get the best business internet packaged with phone and television services for better affordability.
For new business owners really strapped for cash, it might make sense to take advantage of free alternatives to traditional software. For instance, Google offers free word processing, spreadsheet tools and other apps that can help you operate your company. Some free accounting and invoicing software options include Wave Financial for accounting and Melio for invoicing and bill paying.
Scale up smartly
In recent years, the mantra of Silicon Valley has been to get big fast. With access to a seemingly endless stream of investor capital, many new startups burned cash in an effort to scale up and capture a leading market share as soon as possible. That strategy works — until it doesn’t.
With interest rates rising and credit tightening, many cash-burning companies will fail unless they can quickly figure out how to trim expenses and generate a sustainable profit.
Many new entrepreneurs get caught up in the excitement of starting a business and end up biting off more than they can chew. Think about what your enterprise really needs to establish a place in the market versus what would be nice to have. Simply put, you don’t want to spend unnecessarily upfront before you’re bringing in cash. However, you can still prepare for the future while building your foundation.
Consider using software vendors that offer subscription plans that can scale up as your company becomes larger. For example, payroll processor ADP offers plans for small, medium and large businesses. This structure means small business owners don’t overspend for features they don’t yet need, but as their companies grow, they can easily jump to a higher-tier plan and avoid the stress of switching to an entirely new system. Learn more in our review of ADP’s payroll services, which are great for growing businesses.
Unsure what balance sheets are for? Don’t know what net profit means? Make sure you understand the ABCs of running your own business before you dive into the deep end.
Ride out the storm
While the current economic climate may be challenging for businesses, there are still ways to cut costs and increase efficiency when you’re starting a company. As with any strategy, it’s important to experiment and see what works for your company. Not every suggestion on the list above may be feasible for your enterprise. But saving where you can now will help you ride out the highs and lows of launching a business. To survive, and even thrive, in the long run, stay adaptable and be ready to take cost-cutting measures as necessary. Using expense tracking services can help you stay on top of your business finances before it’s too late.