Many potential entrepreneurs have amazing ideas and the drive to start a company that would revolutionize their industry or community. The idea isn’t the hard part, though. Instead, the startup costs present a challenge. From marketing to staffing to product development, companies can spend thousands before they make their first dollar. This is a risk few people can afford, especially if they’re running their business out of pocket or with loans.
There are ways to reduce your seed costs and even long-term operating costs to make your business goals more achievable, though. Here are three common ways to do it.
Hire Contractors Instead of Full-Time Employees
Many companies grow quickly and then experience a period of fluctuation. They might need several employees one month, only to become overstaffed the next. When companies can’t balance their labor needs, they encounter lower profits. Furthermore, full-time employees require salaries with benefits like health insurance, which can drive up the overall costs.
Instead of hiring full-time employees, consider working with contractors or freelancers. They work remotely so you don’t have to find office space for them, plus you can hire them on a per-project basis. This means you only spend what you need to in order to get the work done, and you can scale your business as quickly as you want. More employees are entering the gig economy than ever, so there should be no shortage of labor if you’re paying a fair wage.
Image via Flickr by by 401(K) 2013
Many businesses try to grow rapidly and are afraid to turn down any work offer or opportunity that presents itself. This often causes what’s known as premature scaling, which leads to over-hiring employees. To prevent premature scaling, companies should redefine what they consider performing at capacity and limit their growth to what they can afford.
For example, a software development company should either turn down a new client or increase their fees to the point where they can justify contracting out additional labor. This can be incredibly frustrating for small companies, but the more you’re able to avoid debt, the sooner you can actually make money from your business.
Look for Companies That Work With Small Businesses
As a startup, you don’t have to play with the major companies to get loans or establish credit processing and health care infrastructure. Many companies specifically work with small businesses that have little to no history. Many banks refer to startups as high-risk credit card processing accounts, but others take them with minimal fees.
The best way to get deals is to network with other small businesses in your area and learn who they work with. Ask peers in your industry and other small companies about certain plans and vendors. They might make suggestions that will save you thousands.
Don’t be afraid to take risks and spend money as a small business. It’s okay to take out a loan or two. However, you want to make sure you’re making smart decisions with the money you spend so you can grow in the future.