lean startup

12 Money Saving Tips for Start-ups

Posted on by hytsuperadmin

From our experience, running a business need not cost an arm or a leg. However, we realize that entrepreneurs tend to compartmentalize their personal budgeting away from business budgeting. While it is true that you need to invest a sunk cost to get your business going, you should watch your business spending as much as (or even more closely than) your personal finances.

Here are some proven innovative cost saving ideas to cut costs and stretch your dollar.

 

Follow Procurement Best Practices

It is not enough to simply record your expenses and explain their practical use in the business. You need cost saving ideas to maximize cash flow. Often there are more cost-effective solutions to save money and you need to compare prices before making a purchase. Make it a habit among your team members to source for the most cost-effective solution and presenting their researched options to you before committing to a purchase. But who has time to do all that right, so save yourself the time and hassle and get quotations from ThunderQuote for free.

Just another tip: Assign your most trustworthy and meticulous team member to be in charge of all fund outflows. All proposed expenditure need to be justified to him and there should be no commitment to purchase before his approval, else it’ll be easy to overrun your budget without realising it till the end of the month or worse!

 

Use Free Advertising

There are many free alternatives to paid advertising. Getting paid clicks on social media platforms and Google are targeted and cheaper than the regular billboards, but they may still be expensive for a start-up who needs to cut costs for other business opportunities.

Blogging with good SEO keywording is one way to save money and get free traffic to your website and build your company’s reputation as a thought leader in your industry. Building your repertoire of articles will take a long process, but this is a long-term marketing strategy to build brand awareness.

You can accelerate your web traffic through email marketing and setting up a newsletter. However, buying email lists can be extremely expensive and easily 50% of the emails in the list are outdated. You can create your own email lists, but that will take a very long process. Manually finding 50 emails can take up to 4 hours. You should automate this process for free with TQ Prospector, which extracts 50 emails in 8 minutes. That saves you time to attend to your more important business appointments.

 

Run Your Business from Home

In many countries, a home office is legal and may only require a licence. Take advantage of this flexibility to save your rental and transportation costs. By home office, I also mean working from Starbucks and other cafes at your convenience.

If your business is really successful and your home cannot accommodate your expansion, look for co-working spaces such as Workcentral with all the amenities provided at a cheap cost or incubators like NUS Enterprise which provide free hot-desking spaces are great too! Once again, do your shopping and find the cheapest option that doesn’t burn a hole in your wallet.

 

Go to Conferences for Free

Oh I love this one! Usually conference organizers are understaffed because conferences occur very infrequently. And they tend to hire a lot of part-time working students to shoulder the heavy-lifting for them. Hiring part-time students cost money too! You can help them cut costs through some innovative negotiation.

Here’s what you can offer them: Tell the conference organizer that you have a team of friends who are willing to volunteer their help for free in exchange for participation in the conference. I did this for 6 conferences already, and every one of them were glad to take me in!

And here is the good part: Invite your team and friends for a free learning and networking opportunity in an otherwise expensive conference, at the cost of ushering or doing registration for a short time. You will gain a good standing as being resourceful and generous. So why not?

 

Get Sponsors for Your Own Events

While networking at the events you attend for free, you may meet people who find your services extremely valuable and they may want to sponsor you. I recently attended my friend’s book launch at a Harley Davidson showroom, complete with a sponsored test drive, sponsored catering and sponsored wines. How did he do that? He conveyed the vision for his book in a way that resonated with the vision of his sponsors’ values. His sponsors saw the alignment of vision and decided that sponsoring his book launch is the perfect way to convey their vision to the public. So it is possible! Be creative about getting sponsorship.

 

Buy Refurbished Equipment

You do not always have to buy new equipment if you are not operating your office as a showroom. A refurbished photocopier, cupboard and mini fridge may not look fancy, but they certainly do their job and saves you money. If you work in a co-working space, these may already be provided to you. Otherwise just find a thrift shop, buy in bulk and get a discount.

 

Don’t Hire Full-Time Employees

On the surface, this sounds harsh. But the truth is that you do your entire team a favor in the long-run. Hiring full-time employees can be expensive, and you don’t want a case where you put them out of job if the worst happens. Begin with interns and contract staff to help you with various projects within the business. Your interns will greatly value the experience you offer along with the allowance to pay off their student loans. That helps both you and your interns save money!

If you need a longer-term solution, look for part-time hires. These may be new mothers who need time to look after their kids or university students and other people in a season of transition. Hire a full-time employee only once your start-up has grown enough to need and afford one.

 

Be Lazy. Do It Once, Automate.

What business processes can you completely leave to a machine to handle? I wrote a full article about how you can automate your sales and marketing at zero cost. There are automation tools for almost everything. Write down all your business processes and Google search for tools that can do that 10 times faster than you. Typically, the cost is small relative to the time you save for the things you cannot automate, like meeting prospects and clients. Saving time means money making opportunities for you and your business.

 

Keep It Lean: Outsource

Anything apart from your core business? Outsource. Warehousing? Outsource. Delivery and fulfilment? Outsource. Graphic design? Outsource. Keep your business focused on your core product and lighten the load of your team with what truly matters. Hire consultants as needed on a project basis. This will ensure that you have more time devoted to your team and cut overhead costs and put your money to other uses.

 

Watch Your Cash Cycle

Take note of your accounts collectibles and payables, ensuring that you get money in faster than you pay out is incredibly important especially as a cash strapped start-up.

Even if your income and expenses look healthy, you don’t want to get catch in a situation where your cash on hand falls beneath what you require for daily operations! Read more about cash flow mistakes and tips on how to better manage your cash flow here.

 

Value Your Employee Time

Your employees typically spend 8 hours in office, with a lot of time wasted in meetings. Keep your meetings short! For an introvert like me, meetings drain my mental energy and that means less productivity for the rest of the day. Please spare a thought for the awkward geeky nervous nerds like me.

Rather than having everyone travel to a centralized venue for a meeting, just do teleconferencing, or videoconferencing. In my company we find Skype the most convenient solution to get our meetings done quick. An introvert like me prefers that actually.

 

Negotiate

Negotiate with your landlord. Negotiate with your suppliers. Negotiate for a barter trade. Negotiate for a longer payment period, cheaper rates and yes, an exchange of services.

Negotiate is not about getting all of the pie. Negotiating is about making the pie bigger. Often we don’t know what our counterpart really wants. We just assume that they want the cash. Take time to develop the relationship and know what they need. Perhaps you have something to offer to them that is of value. My marketing consultant wanted to revamp her website and I wanted an email campaign. Guess what? We bartered. And the cost savings we got could be put to other business opportunities.

Find a win-win situation for everyone to come away happy at the outcome and build the relationship.

 

ThunderQuote is the most comprehensive business services portal in Singapore, Australia and ASEAN , where hundreds of thousands of dollars of procurement contracts are sourced every month by major companies like Singapore Press Holdings, National Trade Union Congress and more.

6 Cash Flow Mistakes Start-ups Make & How To Avoid Them

Posted on by hytsuperadmin

Cash flow management problems are one of the top start-up killers today. It is often true that the more funding you raise, the more money you waste. Paradoxically, cash flow management problems frequently occur after investors inject a ton of cash into a start-up. Here’s why:

Entrepreneurs tend to be frugal and prudent when cash flow is running tight and monitoring is easy. Bootstrapping also forces us to think hard about their expenditure to make every cent count.

Conversely, after a huge round of funding, we tend to become complacent and have a grossly mistaken delusion that we have made it big and the future is set in stone. IT IS NOT!

So here is our advice and our fellow entrepreneurs’ experience. Some of whom learnt these cash flow management lessons the hard way so that you don’t have to repeat them. Let’s dive in.

 

Reckless spending

It is true that we should not get too caught up with micromanaging our petty cash so that we can focus on the goals that matter. However, you need your team to buy-in to the reality that a start-up has less resources than an MNC. Every cent counts. With a frugal mindset, your team should ask themselves the following questions before buying anything:

  1. Do we really need this?
  2. Do we already have this or a substitute somewhere in the office?
  3. Is this this the most cost-effective option available?

Question 3 is crucial. Please understand that “cheap” is not the same as “cost effective”. Buying a cheap printer with expensive ink cartridges and a short lifespan is NOT cost-effective. I recommend that you calculate the lifetime cost of using a product before committing to a purchase. Here is an example:

Assume we will print 1,000 pagesper year

Printer upfront cost Printer lifespan Ink cartridge cost Number of pages each cartridge can print Number of cartridges used over printer lifespan Total Cost over printer lifespan Total annual cost
Printer A $80 2 years $40 80 25 $1,080 $540
Printer B $140 5 years $35 100 50 $1,890 $378
Printer C $260 5 years $50 200 25 $1,510 $302

 

Clearly from the example, Printer C is the most cost-effective solution despite having the highest printer cost. The savings per year is actually $238! So take the effort to calculate the best option for your start-up and stretch your dollar to improve cash flow.

 

Spamming hires

I know that your investors will pressure you to maximise your company growth over revenue. You need to be very weary of that advice. What are your investors motivated by? They want your company to group 400% in valuation so that they can quickly exit within 5 years, sometimes 3 years. Right? The reason for their aggressive growth push is because only 10% of their portfolio start-ups will ever make it big, and they promise their investors that they will produce 20% in annualised returns regardless of your long term cash flow management issues.

Your investors’ motivations will seldom coincide with yours, even if they were former entrepreneurs themselves. So, be wise about how you handle investor-relations. Bear this in mind: Don’t hire hastily. Hire right, not hire fast.

What’s more if you want to scale up, automating processes instead of getting more hires will be a much better long-term solution. So keep your team lean with some of the following tips.

  • Automate lead generation with TQ Prospector which enables you to consistently get high quality leads from Google directly
  • Automate sales follow-ups and account management with CRM software
  • Automate financial accounting and budgeting with accounting software such as Xero which integrates with your bank account and minimises manual transaction logging and checking

 

Stockpiling inventory because you believe you will increase sales

It is true that producing inventory in bulk will produce some cost savings because economies-of-scale. However, what this means that you are locking up your cash in illiquid assets and not being able to do anything else with it. After all, your inventory has a shelf life with depreciating value over time. They may expire, rust or get damaged.

Furthermore, you are paying for storage. Depending on the nature of your inventory, sterile rooms, dehumidifiers and chillers do not come cheap. Stockpiling of inventory is one of the most expensive mistakes you can make.

It is really not worthwhile to make some small savings in bulk orders and forego all other business opportunities with your cash. Protect your cash flow. Don’t stockpile on hope. Stay realistic.

 

Paying bills on time

This advice may sound odd at first, after all it’s cash out of the coffers. Shouldn’t we delay payment as long as possible?

While some companies do that, it is ultimately toxic for supplier relationships in the long run and opens up the possibility of being charged interest. Hence, it is always ideal to pay on-time, neither early or late.

Of course, the better your negotiating position, the more you should try to get better terms of payment with an extension of your payment due date.

 

Offering credit to non-creditworthy clients

Repeat after me: DUE DILIGENCE. Bear in mind that however huge or seemingly successful your clients are, they could be another Enron. Check their cash flow statements and statement of financial position. Ask yourself the following questions:

  • Can your client afford to pay you?
  • What is their credit rating?
  • What is their repayment history?

If you suspect that your client is probably unable to pay you, don’t drag the repayment date. Collect what they can pay and be prepared to record a bad debt expense. It’s painful, but it is better to realise small losses early than to realise huge losses later. Don’t gamble with your cashflow.

In the worst case, you might even wish to reconsider taking on the project in the first place. Yes, it looks good as clocked revenue – but revenue that you can never collect on but have to spend your resources to make the project work? That’s throwing good money after bad…

 

Neglecting your Accounts Receivable

Don’t be a loan shark, but also don’t be a charity. The longer your accounts receivable ages, the less likely you will get paid. Keep following up with your dues. The cash you don’t get back is business opportunity gone. Accept partial payments. If you don’t mind accepting a small percentage loss of the accounts receivable, you can consider factoring.

Factoring means selling your accounts receivable. You will have to pay a percentage of the accounts receivable called a factoring fee. This means of financing is popular among small businesses and it is one option you can consider to further improve your cash flow cycle.

 

Have you encountered any of these issues in your business before or have more tips on how to improve cashflow for startups? Let us know in the comments below.

 

 ThunderQuote is the most comprehensive business services portal in Singapore, Australia and ASEAN , where hundreds of thousands of dollars of procurement contracts are sourced every month by major companies like Singapore Press Holdings, National Trade Union Congress and more.