Most people who start businesses don’t have money to throw around, and if you do throw around your start-up capital you might well find that you lose a lot of money and create an unprofitable business.
Learning to bootstrap is an important part of practically any start up because what you really want is to create a lean business with a healthy profit margin. Spending money is often necessary, but overspending is a bad thing.
So, if you are about to take the plunge, read this cautionary blog post first and think carefully about which of your costs are important and where you can save. Remember though that it is also easy to make mistakes by not spending where it is needed!
Buying Stationary
Ok, stationary isn’t the downfall of many businesses (it can happen) but this illustrates a point and a mind-set. Lots of new businesses and Entrepreneurs rush in once their business is launched and buy lots of things that they imagine they will need.
A classic example is business cards of course… Some businesses have a genuine need for them, but if you are not going to be networking and regularly handing them out to prospective clients, save your money. It’s not a huge cost, but it’s still a waste of money that could be invested elsewhere.
Your Web Presence
Every business needs a website these days, but it is easy to pay over the odds or to end up with an inferior product, so the key is to do your research and understand your needs. You don’t have to understand how websites are built, but make sure you understand the market.
In general you will need a domain and a host, although there are some all in one packages which offer domain, hosting and a website CMS (content management system) that make it possible to do it yourself. You will pay a premium for such a system (think £30-50 a month instead of £10 for regular hosting) but it can save you money overall.
What you need will depend on your business, consider open source options if you can though (such as WordPress) and get a simple site live right now rather than letting development prevent you from launching.
Office Considerations
The question of whether or not you need an office depends a lot on your business and whether you plan to have staff right away or you need to entertain clients. The important thing is to minimise your risk and make-do as best you can until you know what you really need.
You might want to consider other IT services such as a virtual office or mail forwarding as an alternative to an actual office; this can give you the right ‘look’ without the big costs.
Stock Purchases
If you are buying stock, think very carefully before committing. This is an easy way to waste money and lose business before you even start. A common mistake is to invest all of your capital in what you think will sell, only to find that you bought the wrong thing.
Instead, try to buy as little as possible until you get a feel for the market. Don’t over commit yourself and keep capital to spare so that you can seize new opportunities if they arise.
You can even advertise products that you don’t sell and if they sell, buy them from your competitors – this will create a small loss for you, but it is an excellent way to see what sells. Buy the items you are already selling and avoid buying unpopular stock.
IT Support
Don’t under-estimate your IT needs. Ironically this is an area where most businesses underspend and that can be costly.
In particular, utilise software and services which save you money elsewhere.
For instance 1:
Decent finance/accounting software costs a small monthly investment, but can help you to save a lot by helping you to understand your costs and your profitability.
For instance 2:
Cheap hosting is good, but unreliable hosting can lose you traffic and downtime can cause a loss of sales. Fast reliable hosting is often worth paying extra for.
Currency Risks
Finally, be aware of currency risks if you operate internationally or even if you don’t. The world is a small place these days and if you are buying stock from abroad (even if your supplier is in the UK, their supplier might not be) be aware of your vulnerabilities.
For instance:
If you buy too much stock and then a currency moves favourably, your competitors might drop their prices, forcing you to do likewise; but you will still be selling stock that you bought at a higher price, causing you a loss (another great reason to buy little and often).
