Continuing the theme of setting up your own business this week, I thought it would be useful to take a look at ways to run a frugal venture and keep costs down. In any business, large or small, new or old, expenses can easily spiral out of control and eat into profits.
Here are some ideas – let me know if you have others to suggest:
1. Build up a handy cash cushion. These days it’s not easy to persuade your bank manager to lend you money, and frankly it’s better anyway not to rely on expensive borrowings to fund your business. Instead, try to build up some savings before you embark on your new venture. Tucking some money away each month will buy you valuable time and provide a cushion when cash flow proves erratic.
2. Keep your overheads low. Consider starting a business which won’t need much in the way of equipment to get it started, such as you, a laptop and a phone. Try to avoid renting expensive offices or hiring full time staff unless they are really necessary – pick a business that you can initially run from home, if possible. If not, see if you can rent cheap office space as and when you need it. There are many serviced offices which offer space on an hourly basis. Some entrepreneurs also say that it’s possible to strike great rent deals at the moment as some landlords are keen to get a few tenants in to attract others.
3. Start up your business part time. If you’re already in work but thinking about becoming your own boss, consider starting your venture on a part-time basis, if possible, around your existing job. This way, you won’t have to take the risk of giving up your job and you’ll be able to find out whether the business you’ve chosen really has legs and if you enjoy doing it enough to sacrifice your day job.
4. Be your own accountant. Completing your first tax return as a business can be a daunting experience, but the ability to file your return online now via the HMRC website is very convenient. If yours is a fairly straight forward outfit and you are reasonably numerate, you may find it easy to complete your own tax return and avoid spending money on an accountant. Contact your local tax office, which run free courses on how to fill in the forms.
5. Don’t rush to spend money on your business. It’s tempting to splash out on expensive advertising and the latest hi-tech equipment, but do you really need it? Many small businesses rack up unnecessary debts by buying stuff that they could do without. Check whether hiring or leasing equipment, such as a van, may be cheaper than buying it. Buy office furniture and filing cabinets etc. from auctions or second hand stores. Recycle paper – if you need a notepad just staple together used loose pieces of paper which are blank on the other side. On the other hand, don’t make false economies. There’s no point relying on a beaten up old van that always breaks down or gives clients a poor impression, for example. In terms of marketing, many business people still say that word of mouth is more valuable than costly advertising. Join networking groups and attend their meetings/make use of social networking sites such as Linkedin to get to know useful contacts and potential new clients.
6. Keep on top of your invoices. Cash flow can make or break a new business and in these tough times large businesses will often ‘manage’ their own cash balances by being slow to pay. Such behaviour can put their suppliers out of business. Make sure that you chase outstanding payments politely but firmly and if certain clients are repeatedly poor payers, avoid working for them altogether. No matter how prestigious a client may be, there’s little point in providing services for them if they won’t cough up or if chasing the invoices takes up too much of your time.
Do you have any other pointers for running a frugal business? Leave a comment and let me know.
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