Being Frugal as a Start-Up

It is an unfortunate fact of business that half of the start-ups in the UK will have gone bust within the first five years. This has worsened in the current economic climate, with many blaming the current lack of funding available from banks. What it is vital to take from this statistic is that cash flow is all important in the early days of a venture and frugality can be your friend when it comes to long-term business success.

Building on a Sound Business Plan

The more research carried out prior to setting-up a business the more likely it is to stand the test of time. A business plan will need to include research on competitors, expectations of your own start-up costs in terms of premises, equipment and staff and detailed information on both profit and loss and cash flow forecasts.

This is also the phase when you should consider what type of business entity you want to establish. If you are going it alone in the early days you could consider the sole trader route, a partnership will offer someone to share the load with, but can sometimes lead to conflict, and the limited company option offers more personal financial protection but comes with additional responsibilities.

Protecting Your Assets

Security in all its many forms is something that is often given scant attention during the early days of a start-up. However, in this era of rampant data hacking it is vital to protect your own personal and financial details and those of your clients and employees. You will also quickly accrue a great deal of documentation which will be needed for tax returns, client projects and human resource requirements. To make sure this data is stored securely it’s advantageous to use a document management service. This helps to keep you in compliance with business and tax regulations which require you to store data for a fixed number of years.

Reducing Overheads

We all know the advantages of being frugal in our personal lives and this can be carried over into the business arena. Consider carefully any purchase and ask yourself whether it is a genuine requirement or just an optional extra.

Premises

If you are a sole trader or employ only a few people it can be cost efficient to start off working from home. You can use a virtual office to provide you with a business address and telephone number and even the occasional meeting space for staff or client requirements.

Working from the cloud also means you can all access data easily and quickly and the advancements in technologies such as Skype, screen share and online chat mean staff can network regularly.

Equipment

Unless you use specific equipment for your profession you can get away with running a business on a shoestring, with only a laptop and mobile phone. Additional equipment such as printers and photocopiers can be used at your local print shop and anything vital for your business can often be leased or bought second-hand, creating substantial savings for you.

Staff

Employee wages and benefits will be some of your biggest overheads so before you hire, consider whether you can sustain that person’s employment over the long term. If you are not ready to make that commitment yet look to freelance staff in the interim who will be able to fill almost any gap within your business.

Take Advantage of Expert Advice

Being frugal however, doesn’t mean skimping on areas where expert advice is called for. You can make substantial savings on your tax bill in business if you know what expenses you can legitimately claim for. Therefore, it’s often more cost efficient to pay for the services of an accountant who can steer you in the right direction early on.

The same is true for legal advice and insurance. Better to have a watertight contract drawn up by a solicitor and be covered by adequate insurance than to find yourself on the wrong side of a legal claim and ultimately fined, prosecuted or out of business.

There are many advantages to approaching business with a frugal mindset, not least the fact you can show any investors you are spending their money wisely. Ultimately it is better to spend on areas which will offer you greater protection and peace of mind and cut back on those which are more about image than substance.  That way you have a much greater chance of making it well past your fifth anniversary in business.