When you’re setting up a business it can be easy to get carried away. You’re excited, you’re motivated, you want your business to look credible and you’re likely to be keen to grow your SME as quickly as possible.
Hold fire. Whether you’ve managed to secure outside investment or are funding your business yourself, how you spend on your business in its very early days could be the difference between being a business success story and becoming one of those oft-spouted failed business statistics (approximately one in three won’t make it past the first year, and only 50 per cent of start ups get past year three).
Operating Systems, Equipment and Technology
Having the right tools to do what you do is crucial – whether that’s a single computer or a complete operating system. Cutting costs on the tools that you need to provide the service or make the product that you offer will be counterproductive, causing frustration for both yourself and your clients. However, there’s a difference between what you ‘need’ to do your job and what would be ‘nice to have’. Learn to differentiate between the two to keep your balance sheets healthy.
If you’re not a ‘one man band’ business then investing in the right people is important. In order to find the right person for each role in the business you will need to pay to advertise and recruit that person, as well as be prepared to offer competitive remuneration in order to attract and retain quality employees.
Once you’ve found someone who is the right fit for your business, keep their job satisfaction high by offering them appropriate training, keeping their skills up to date and investing in their development in ways that will benefit both them and your business. For example, in 2011 the parcel delivery company DPD implemented a ‘Be Amazing Every Day’ programme to deliver training and engage positively with employees. This saw marked increases in employee productivity, retention and satisfaction – resulting in efficiency gains of £10m!
No business is going to grow very quickly without advertising – whatever form that may take. The key is to find the type of advertising, or the combination of types, that work best for your business. With UKOM data showing that around 40 million people in the UK use the internet every month, many businesses are turning to online advertising and, increasingly, mobile advertising, in these modern times, however, it’s important to consider your target market and your budget carefully. If you’re a local business targeting local clientele, for example, outdoor (billboards) or print advertising in local press might be more effective.
Getting your business premises, whether that’s an office, a shop, a studio or something else, is one of the most exciting aspects of starting a business. This does mean though that it’s an area in which you can easily let your heart rule your head. There are many ways to save money on your business premises – the most popular of which being working from home, with the Office for National Statistics revealing that 58 per cent of the self employed either work from home, in the same grounds as their home or use their home as a base.
Working from home is the ultimate way to cut costs on business premises, however you need to consider insurance implications, the potential impact on your (and your family’s) work/life balance and any reputations issues with clients – for example, if your business relies on regular client meetings or face to face interaction with customers, it’s not usually ideal to conduct these from home.
Alternatives to working from home include hiring a ‘flexi’ office, meeting rooms or even a desk in an open plan office, sharing office space/a shop/other business premises with another business and looking at premises in less popular (and less expensive) but ‘up and coming’ areas.
If you are funding your business start-up yourself then it’s likely that you will need to borrow money to do so. And, even if you have secured external investment, financial tools such as a business overdraft and credit cards may be at the very least useful and, more likely, essential, when it comes to managing your cash flow.
Spend some time researching the right type of borrowing for your business needs – for example, for a short term loan an overdraft or credit card may suffice, whereas for longer term borrowing a loan will be a more cost effective option – then check your credit rating using the Experian CreditExpert service. You can compare the best deals on different types of borrowing online, to calculate the best option for your business.
Bills come hand in hand with running a business premises, and even businesses that run from home will have associated costs. Utilities, business banking and external services, for example a cleaner or an accountant, are costs that will quickly eat into your profit margins. The key is to shop around, just as you would in your personal life.
Utilities, insurances and business bank accounts can be compared easily online, so spend some time finding the best deals to save all-important cash. The same applies to services – for example, while a good accountant can save you money in the long run, small and local, or even online, accountancy firms are likely to cost less than the well-known city centre operations.
Managing cash flow is a crucial factor in business success, and there are times to keep hold of the purse strings, just as there are times when you need to invest in your start up to enable it to thrive and grow. The trick is to know the difference – spend and save at the right time and you’ll be on your way to legitimately popping open that bottle of champagne (or should that be a more budget friendly cava?) having made it to the end of your first year in business with a healthy-looking balance sheet.