Where Should Your Money Go?
Running a startup requires a lot of financial savvy. Barring the unlikely backing of a billionaire, you don’t have the budget to throw money at every obstacle ahead of you, so you need to know how to invest wisely in the future. Make smart decisions, and your company will grow at a steady pace. Choose poorly, and you’ll struggle to make it through your first year.
It’s one thing to accept that you need to spend money wisely, and it’s another to know how to do it. There are so many things you could be investing in, after all, so it’s understandable if you’re somewhat confused. What should you pick as your top priority for startup expenses? What can wait until your finances are more stable?
You’ll get better at budgeting for business startup costs as you run your company, but you don’t need to figure it all out alone. Here are some suggestions for where you should focus your funding to support stable growth:
The required infrastructure includes those things your business needs to get its work done. These startup expenses can encompass everything from office space and business laptops to software as a service (SaaS) subscriptions and VoIP systems, and it’s the last thing you want to subject to cost-cutting.
Let’s say your business requires a lot of graphic design work, for instance. Could you forgo an Adobe® Creative Cloud subscription and use a free tool such as GIMP to get similar results? Technically, yes—but the difference in usability is immense, and the dip in productivity could cost the money you saved from using a free tool.
Then there’s the need for adaptation to accommodate the rise in remote working. While there are various zero-cost apps that can help (including Zapier and Trello), watch so that you don’t cut corners on features—you may end up hindering productivity. Overall, focus on lining up the tools you need to succeed (and back them with a good portion of funding) to help your business grow.
Long-term employee investment
Your employees should always be your biggest investments: hire the right talent, and their value could be monumental, far outpacing the money you spend on recruitment and training. Your approach to recruitment needs to reflect this, with a significant amount of funding going into sourcing and vetting candidates (including top-of-the-line HR tools).
Bear in mind that this doesn’t mean you should spend heavily on bringing in the most experienced professionals. Someone who is worth a higher salary doesn’t necessarily make them a better fit for the company. Instead, aim for a strong mix of experience and potential by assembling a team of talented novices and find some seasoned pros to teach and guide them.
If you find someone you really believe in but find that they’re asking for more than you can afford to pay, don’t discount the prospect of getting additional business financing. Get a talented pro up to speed quickly, and they can start contributing profit within months.
Building emergency savings is among the most important business startup costs. Regardless of how sensibly you budget and how promising your business is, there’s no avoiding the risk of failure. Lack of cash flow is a common reason for startup failure. Allow profitable deals to pay off down the line and you can run out of liquidity, causing your operation to grind to a halt. And then there’s the proverbial act of God: what happens if a natural disaster hits?
Because of the fundamental unpredictability of business, you can’t leave savings for year two. Start setting aside money for your reserves the moment your startup is off the ground. How much should you consider saving? Many believe that just like individuals, businesses should have enough cash on hand to pay for three to six months’ worth of expenses. In reality, the amount you set aside should be based on your business’s financial risk.
Get started with Greater Alliance
Sticking to this shortlist should make it somewhat easier to prioritize your startup expenses. Get your operational infrastructure in place, recruit a talented team and build an emergency fund to safeguard your future. If you are starting a business and looking for checking and savings options or need help with a business loan, contact us at 888-554-2328, ext. 290 or schedule an appointment with our Business Specialist.