If you’re at the helm of a new business, you’re probably looking for ways to save money. Knowing how to reduce costs can help you avoid waste and free up much-needed financial resources at your young company. It's all about being strategic so you can meet your business goals while fueling growth and expansion.
This is why smart budgeting is so important. In that spirit, here are seven strategies to keep business expenses low in your first year.
1. Consider all your funding options
While unlimited funding would be nice, many new business owners try to keep their startup costs lean. It makes sense given that 1 in 5 U.S. businesses don’t survive past the first year. Casting a wide net when it comes to funding could help stretch your dollars. By partnering with investors, you’re essentially trading equity for capital. You’ll typically receive upfront funding to put toward your business.
Unlike with a small business loan or line of credit, you won’t be on the hook for making a monthly payment. That can be great news for your budget, though you are giving up equity — investors will receive an ownership stake in your business. With that said, some business owners may be fine with that.
2. Look into grants
Small business grants can be a great resource for a new business. They’re generally provided by the federal government, state and local governments, and private foundations and organizations that are looking to help small businesses thrive. A grant is different from a loan in that it’s essentially free money that doesn’t have to be repaid. Small business grants can be competitive, so be sure your business plan is the strongest it can be. Every grant is different and will have its own qualifying criteria and application process. You can search for opportunities at Grants.gov, GrantWatch.com, and Foundation Directory Online.
3. Build a remote team
Startup costs can add up quickly. That includes securing supplies, paying employees, and covering other necessary expenses to get a new business off the ground. Office space, which varies in price from city to city, can be a huge cost. The average rent for office space in Tampa, Fla., for example, is over $31 per square foot, according to CommercialCafe.
Reducing your overhead is key. A popular way of doing this is to ditch the office and invest instead in a remote team. This became the new norm during the pandemic — and the trend seems to be sticking around. During the spring of 2022, a McKinsey & Co. survey found that 58% of Americans had the opportunity to work from home at least one day a week.
4. Outsource key tasks to freelancers
Freelancers and consultants charge an hourly or per-project rate to complete work as needed. In-house employees, on the other hand, typically require a regular salary or hourly pay, plus benefits. Payroll taxes also come into play. Contract workers are unique in that they’re responsible for covering their own tax obligations — employers don’t have to withhold taxes from their paychecks as they do with regular employees.
Depending on your budget and needs, it might make more financial sense to outsource key tasks to freelancers instead of onboarding full- or part-time employees. Your total cost will depend on the average rates for the type of work you’re farming out. For example, a freelance social media manager generally costs anywhere from $14 to $35 per hour, according to the freelance platform Upwork.
5. When it comes to business expenses, shop around
When you look at your regular operating expenses, ask yourself if any of them might be negotiable. Some service providers may be open to bringing down their prices. If not, you can shop around to see if competitors offer better pricing. Some business expenses to consider include Wi-Fi, company cellphone plans, utility bills, and rent. Don’t forget about your business vendors. Doing some research and comparing prices could free up space in your monthly budget.
6. Barter with other small business owners
Staying connected to other small business owners can have its perks. During your first year of business, you might consider bartering as a way to save money. This involves swapping services with other small business owners. Don’t have time to spend on recruitment and onboarding? You could team up with a small staffing firm and ask for a discount if your business provides free or discounted services in return. You’re each supporting each other and reducing costs at the same time.
7. Seek mentorship and guidance
Launching a new startup doesn’t mean you have to go it alone. Learning from folks who’ve been there and done that can help you manage your first year in a more cost-effective way. That might mean reaching out to professionals in your network who’d be open to letting you pick their brains. Just be sure to make it a two-way relationship where you’re adding value too. (The last thing you want is for them to feel used.) Partnering with a SCORE-certified mentor is another simple way to get personalized support and guidance from a pro.