Money is tight when you are a Minimally Viable Startup (MVS). Entrepreneurs need to reduce costs, and initial outlays. Many startups fail by either not restricting initial expenses or not managing VC funds properly. Of course, no amount of money and management will make a bad idea or execution succeed.
One important point first, you may think your personal financials are unrelated to your business ones, but how you manage your personal funds is probably a good indicator of how you manage your startup’s, especially if this is your first foray into starting a business. If your personal finances are a mess, what makes you think your startup’s will be any better?
Fix your personal expenses before you dive into a startup situation. You may need to fall back on these if your business income stream dries up. Obtaining a small business loan will be problematic if things are a mess. Also, know your credit score. Fix it first.
How do you nurse your available funds to get the most of what you have? Here are 5 tips to you should follow:
1 – Prioritize your expenses.
Make a list or spreadsheet. Understand what is and isn’t important and how much it is costing you and how much you gain in return. Assign an ROI from 1-10 to each item. If you don’t know the actual ROI, provide an estimate or relative value number. Sort your list down and try to eliminate or at least minimize the bottom third of your list outright.
2 – Don’t spend on things you may need in the future.
Focus can go a long way to limiting business expenses. For example, you may think you need to rent office space for all of the employees you think you may have in a year. A lot can happen in that time. Understand the difference between “investing in the future”, and spending because something may or may not happen. Spend money to grow the business, not to support it in the future. Live in the present spend to see tomorrow.
3 – Leverage free, low cost and available resources.
I’ve mentioned using crowd sourcing resources for art design. There are a lot of crowd sourcing sites springing up for everything from ad writing, art, and even coding. These are professionally run and usually vet their contributors. The key is, you can get what you need for whatever your budget can support. Make sure you view any online portfolios to make sure the quality is what you expect.
There may also be freely available resources you can use. Need wifi? Use hot spots. Need images, legal forms, etc? Search engines are your friend. Make sure you read any associated licenses and follow the letter of the law.
The bottom line (no pun intended) is don’t hire people or buy resources if you don’t have a sustained demand for them yet.
4 -Track everything you spend and don’t spend if you don’t track.
Know when, where, and for what your money is going. Do this to understand the timing of expenses so you can schedule better. Knowing when money is moving is as important as knowing what you’re spending on. Establish a budget and evaluate and update it regularly. Budgets should never be “fire and forget”.
5 – Charge for your time and outlays appropriately.
It’s easy to start throwing “freebies” at customers, such as covering costs such as printing, shipping, etc. As an MVS you can’t afford to do this. If a cost is related to a client project it should be included in the cost passed on to the client. Likewise any time you spend on the client’s behalf needs to be tracked and rolled into the costs passed on to the customer. Charging appropriately will offset and help minimize your expenses. Your time and efforts are valuable.
In summary, there are many ways to limit expenses when you’re a startup. One side-effect of limiting your expenses is you will be able to save more for those times when you really need the money, or to invest in growing the business. Leverage what you have the best ways you know how.