6 Ways For Startups To Reduce Operating Costs

by Morgan Sims

Of the many crucial issues that are unique to startup companies, month-to-month cashflow is most commonly at the top of the list. Beyond the month-to-month concerns are typical budgetary concerns that plague every company.

Here are a few ways for startups to reduce operating costs so they can function more efficiently, and make every dollar count:

1. Minimize Premises Costs.

The cost to physically operate a business can turn into a major financial burden for startups. One of the benefits of these companies is that they can function on their own rules. Depending on the business type, there’s the option to have employees and contractors work from their homes to minimize or eliminate the cost to rent an office space.

Another option for reducing premises costs is to rent equipment you’ll need for a period of time, rather than investing in things you will only need temporarily.

2. Hire Freelancers and Contract Employees.

As businesses grow and begin to thrive, it’s important to develop a permanent staff. But during the startup phase, freelancers and contractors can offer a unique flexibility and affordability to the company without a major budgetary commitment. Permanent employees are a necessity for the company, but they require a certain degree of investment between training, management, benefit packages, and more. Balance your need for a full-time staff with a barrage of freelancers who are willing to complete projects when they’re needed.

3. Remain Flexible.

Startup companies simply must be open to change, and welcoming to new ideas. The very nature of a startup is that it’s constantly improving and changing the way it operates. If you notice one area of the company isn’t performing the way you’d like, be open to the idea of changing it up. It’s during these formative years that you’re allowed (and even to some extent encouraged) to try and fail as you strive to find your footing.

4. Use Technology to your Advantage.

Technology exists to make our lives easier. Again, it depends on your business model, but investing in technology wisely and with purpose will go a long way toward helping startups achieve success. The most logical place to start thinking about technology is in the area of Internet and phone connections. There’s a variety of SIP providers out there that have developed ways to combine the two needs into one marketable service.

These solutions typically shave off overhead costs by simplifying IT management processes, and combining traditional phone and Internet service into a single online connection using an existing IP PBX system. There are other business phone services available on the market as well, so startups should take care to choose the provider that best suits its individual needs.

5. Evaluate Periodically.

One of the best ways to improve efficiency is to continually evaluate the status quo. Savvy business owners generally seek expert financial advice and accept guidance from their peers, as well as owners of similar businesses who are successful.

The best way to make this happen without blowing all your money on expert consultants is to hire expert employees. Recruit knowledgeable professionals who will be committed to ensuring the success of your enterprise. Finding an accountant that can double as a business advisor, for example, would be highly beneficial to both you and the potential hire. Consult with professionals you trust and evaluate your financial on a monthly, if not weekly, basis.

6. Keep Employees Happy.

As we mentioned earlier, it’s in your best interests to keep your staff numbers to a minimum. That being said, the employees that you do have on staff permanently will be some of your biggest assets and replacing them will be costly. Startup employees are unique because they typically have a vested interest in the success of the company. They also each maintain very specific responsibilities, and they hold a lot of knowledge and know-how where your business is concerned. Keep them happy by keeping the lines of communication open, providing a comfortable and respectful work environment, and giving them a reason to stay.

There are a lot of strategies out there for startups to reduce their overhead costs. We’ve listed some of them here, but we’re interested in hearing what you have to say. What are some strategies you’ve found to be effective? Any that you tried that backfired? Please share your comments and experiences in the comments below.

Morgan Sims is a writer and graduate of the University of South Florida who loves all things tech and social media. She has been involved with two startups that had their fair share of struggles, and taught her a lot about what not to do.