Cost Control in Early-Stage Startups: Finding the BalanceOct 06, 2023
In the early stages of any start-up, achieving a balance between spending and saving can become quite delicate. While it's tempting to invest in every piece of shiny new tech and hire experts for every role, cost control can make or break a business in its early stages. The key? Finding the balance.
Understanding Your Essential Costs
Before you can control costs, you must understand them. There's a difference between what's nice to have and what's necessary. This distinction becomes clearer when the funds are limited.
Start by listing out all current expenses. Then, classify them into 'Essential' and 'Non-Essential.' While a payroll system might be indispensable, a high-end coffee machine for the breakroom might be considered a luxury.
I generally find this exercise easier when building a "worst case" budget model. If the business took a downturn or you need a scenario whereby you can't get any additional funding and you need to breakeven - what would you keep and what would you remove? This makes it easier to decide on essentials.
There then needs to be a decision on whether non-essential items are still worth holding onto for other reasons, such as team morale for that coffee machine....
The Power of Quarterly Software Subscription Reviews
In our digital age, software subscriptions quickly accumulate. While each might seem insignificant on its own, together they can be a sizable drain on resources.
That's why conducting quarterly reviews of all your tech subscriptions is invaluable.
I would often go through this list once a quarter with the CTO and any high software users (Product / CCO) and ask:
- Are we actively using this software?
- Does it still serve our needs or are there more cost-effective alternatives available?
- Can certain software services be consolidated for a better price point?
- Are all the users being utilised or can we cut back on the number of users we're paying for?
By regularly revisiting your tech stack, you can ensure that every pound spent genuinely adds value to your start-up.
Capitalising on Cashback and Negotiation Services
A savvy Finance Director knows the value of negotiation. Thankfully, there are companies that specialise in helping businesses reclaim cash or negotiate better deals, especially in areas like tech subscriptions, council rates in the UK, merchant fees, and more.
For instance, if you're paying council rates, certain firms can help negotiate reductions or even identify overpayments. Similarly, if you're shouldering hefty merchant fees, there might be room to renegotiate or find alternative providers offering competitive rates.
There are also more and more, cashback services offer a way to get a percentage of your expenditures back. While it might seem minuscule, over time, especially in the early stages, these savings can add up.
By being proactive about cost control it doesn't necessarily mean stifling growth. Instead, it means making well-informed decisions to ensure sustainable growth. In the early stages of a start-up, where every decision can significantly impact the trajectory, finding that fiscal balance is not just beneficial—it's crucial.
By regularly reviewing outgoings, leveraging negotiation and cashback services, and having a clear understanding of essential costs, start-ups can set themselves up for long-term success without the weight of unnecessary financial burdens.
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